"Findings of Recent IEA Work"
Findings of Recent IEA Work 2001 I N T E R N AT IO N A L E N E R GY A G E N C Y FOREWORD Two years ago, on the occasion of its Twenty-Fifth Anniversary, the IEA Secretariat published a pamphlet called “Findings of Recent IEA Work”. It contained insights from the Agency’s programmes, articles, speeches and reports. The brief entries, each containing references for further study, filled a gap in the IEA’s communications with governments, scholars, journalists and the wider public. The book quickly found a receptive audience. It is now out of print. We have prepared a new edition, to be launched formally at the Ministerial-level meeting of our Governing Board on May 16. The text has been entirely revised, as has the graphic design. It is divided into four sections: s Energy in the New Millennium s Energy and Climate Change s Energy Technologies s Energy in the Wider World For readers who already know the IEA well, this pamphlet will serve as a ready reference. For others, it provides an overview of the many, varied and fascinating activities in which we are engaged. Robert Priddle Executive Director of the IEA TABLE OF CONTENTS s ENERGY IN THE NEW MILLENNIUM 4 q World Energy Outlook - 2000 5 q The Emergency Preparedness of IEA Countries 6 q Promoting Oil Market Transparency 7 q Prices,Technology and the Rebound Effect 8 q The Burden of Energy Subsidies 9 q Competition in Electricity Markets 10 q Regulatory Reform in the European Gas Market 11 q Nuclear Power in OECD Countries 12 q Mergers and Acquisitions 13 q Information Technology and Energy 14 q Energy Policies of IEA Countries - 2000 Review 15 s ENERGY AND CLIMATE CHANGE 16 q CO2 Emissions from Fuel Combustion 17 q Greenhouse Gas Emissions from Transport 18 q The IEA Emission Trading Simulation 19 q Climate Change: National Policies and Measures 20 q Energy and Sustainable Development 21 q Market Reform and the Environment 22 s ENERGY TECHNOLOGIES 23 q Renewable Energies for the New Millennium 24 q Long-term R&D for Renewable Energy Sources 25 q The Climate Technology Initiative 26 q Technology and Climate Change 27 q Capturing and Storing Carbon Dioxide 28 q International Collaboration in Energy Technology 29 q Information Centres 30 q Electric Transmission and Distribution 31 q Reducing Standby Power 32 q Energy Labels and Standards 33 q Research and Development in Oil and Gas Technology 34 q Best Practices in Deploying Technology 35 q Best Practices in Energy RD&D 36 q R&D and Technology Issues in Transportation 37 q The IEA Energy Indicators 38 q Experience Curves for Energy Technology Policy 39 q Government’s Role in Promoting New Technology 40 TABLE OF CONTENTS (CONTINUED) s ENERGY IN THE WIDER WORLD 41 q OPEC's Resurgence: A New Threat to Consumers? 42 q The Producer-Consumer Dialogue 43 q Tumultuous Times in World Oil Markets 44 q International Oil Trade 45 q High Oil Prices and Developing Economies 46 q Russian Energy Policy Developments 47 q Oil and Gas in the Caspian and Black Sea Regions 48 q China's Worldwide Quest for Energy Security 49 q India, a Growing International Player 50 q Southeast Asia Gas 51 q Developing Countries and Climate Change 52 4 Energy in the New Millennium s WORLD ENERGY OUTLOOK - 2000 s THE EMERGENCY PREPAREDNESS OF IEA COUNTRIES s PROMOTING OIL MARKET TRANSPARENCY s PRICES, TECHNOLOGY AND THE REBOUND EFFECT s THE BURDEN OF ENERGY SUBSIDIES s COMPETITION IN ELECTRICITY MARKETS s REGULATORY REFORM IN THE EUROPEAN GAS MARKET s NUCLEAR POWER IN OECD COUNTRIES s MERGERS AND ACQUISITIONS s INFORMATION TECHNOLOGY AND ENERGY s ENERGY POLICIES OF IEA COUNTRIES - 2000 REVIEW 5 Energy in the New Millennium WORLD ENERGY OUTLOOK 2000 KEY MESSAGES s World energy use will rise by 57% between 1997 and 2020, at an average annual rate of 2%, which is slightly below the average growth rate of the past three decades. CO2 emissions from fossil fuels will increase by 60% or 2.1% per year. s Fossil fuels will account for 90% of the world primary energy mix by 2020. Oil, gas and coal will meet almost all the incremental demand for energy. s The shares of different regions in world-energy demand will shift significantly, with the OECD share declining and that of developing countries rising. s International trade in energy will increase sharply. The main consuming regions will become ever more reliant on oil and gas imports, especially after 2010. s Despite policies and measures planned or implemented in OECD countries, energy-related CO2 emissions in 2010 will still be significantly higher than targets set in the Kyoto Protocol. Power generation in developing countries will account for nearly one third of the increase in global emissions by 2020. SUMMARY The World Energy Outlook - 2000 examines energy supply and demand from now to the year 2020. It presents a Reference Scenario, which incorporates new policies and measures already taken by OECD countries to meet their commitments under the Protocol. This scenario assumes global economic growth above 3% per annum, but slowing population growth. Fossil-fuel prices are assumed to remain flat at $21 per barrel in today's money until 2010. Oil prices do increase thereafter, reaching $28 per barrel in today's money by 2020. Gas prices will increase in line with oil prices. Oil will provide 40% of the primary energy mix in 2020, or 115 million barrels a day in 2020, compared to 76 mb/d in 2000. Oil demand growth will come mainly from transport and, in non-OECD regions, from power generation. Natural gas is the second fastest growing energy source after non-hydro renewables. Coal's share in the energy mix will decline, even though coal use will rise in absolute terms. Nuclear power production is projected to decline slightly by the end of the outlook period. STUDY World Energy Outlook, IEA, Paris 2000 6 Energy in the New Millennium THE EMERGENCY PREPAREDNESS OF IEA COUNTRIES KEY MESSAGES s Oil is and will continue to be for the coming decades the most important commodity in international trade. s There is no room for complacency. The last decade has seen IEA countries' dependence on oil imported from non-OECD countries rise back toward the highs of the 1970’s. IEA stocks as a proportion of imports have fallen steeply since the 1980’s. s Thanks to continuous efforts to improve their emergency policies and procedures in a changing oil market, IEA countries are able to respond to any contingency, quickly and effectively; this capacity must be maintained. s In the area of demand restraint, challenges are tougher than in the past, due to limited fuel- switching capacity and growing concentration of oil demand in the transport sector. s Relations with non-Member countries, including producers, have intensified and this has gone some way to improve global energy security. SUMMARY The IEA was founded in 1974 following the oil shock of 1973. Since then, the Agency has worked constantly to avert the disruption of world oil supply, or, if necessary, to respond quickly and effectively to an oil emergency. Every five years, the IEA publishes an exhaustive report on its Member countries' preparations to respond to major oil-supply disruptions. The Year 2000 review, the first since 1996, finds a strong legislative framework and administrative structure in all IEA countries. Our Member countries have assembled credible emergency oil stocks. Most hold stocks equivalent to or well above the 90 days of net oil imports, the amount to which they are formally committed. IEA countries also have viable demand restraint programmes. Weaknesses in national programmes have been identified and will be corrected. The report analyses the changing pattern of emergency responses required to meet the needs of a changing oil market. It also contains detailed country-by-country analyses for 28 countries, including the Czech Republic, the newest IEA member, as well as of candidate countries: Poland, the Republic of Korea and the Slovak Republic. In each case, an assessment is made of the main emergency response measures, including stockdraw, demand restraint, fuel switching, extra oil production and the sharing of oil supplies. A separate section presents a brief overview of the legislative and regulatory basis underlying each country programme and other relevant information. STUDY Oil Supply Security: the Emergency Response Potential of IEA Countries in 2000, IEA, 2001 7 Energy in the New Millennium PROMOTING OIL MARKET TRANSPARENCY KEY MESSAGES s The widening gap between global oil supply and demand figures is due in some measure to the deteriorating quality of available data. s National administrations and international organisations must allocate more resources to energy statistics to reverse this trend. Oil companies must also support this effort, since they are the original source of data. s Major statistical institutions from around the world must continue and intensify their efforts to improve co-operation and transparency. SUMMARY In recent years, national and international statistics offices have seen sharp reductions in their budgets and staff.Yet energy-market deregulation, the demand for efficiency indicators and new data requirements for environmental purposes have greatly increased the workload of the statisticians who remain. As a result of this growing imbalance between the workload and available resources, statistical quality has deteriorated. Data transparency, especially in the oil sector, has suffered. In the absence of accurate and timely data from key producer and consumer countries, it has become more difficult to assess the global oil market. This has led to increased speculation and volatility. Reliable and transparent statistics in areas such as production, trade, stocks, refining and demand are essential for effective decision making. On 13-14 November 2000, the IEA invited statisticians from APEC, Eurostat, OLADE, OPEC and the UN to Paris with the aim of improving the use of existing resources by strengthening international co-operation. The meeting examined differences in methodologies, units and definitions. Data comparisons for selected countries and regions were examined. Undertakings were made to reduce differences and to make information more readily and easily available worldwide. A second meeting, held in April 2001, brought together the six organisations and twenty major oil producing and consuming nations. It was decided there to launch a six-month exercise in coordinated collection and processing of statistics. The results of this exercise were to be reviewed at a follow- up meeting in November 2001. Oil companies were invited to participate in the process through a series of technical round-tables. PAPERS Paris meeting, Oil Statistics, 13-14 November 2000, supporting documents Bangkok meeting, Improving Oil Data Transparency, 1-3 April 2001, supporting documents 8 Energy in the New Millennium PRICES, TECHNOLOGY AND THE REBOUND EFFECT KEY MESSAGES s The "rebound effect" explains why technological improvements in energy efficiency do not automatically reduce energy intensity. s Energy policies are more likely to succeed if they take into account both price-based instruments as well as those that directly influence technology. s Assessing the measures most likely to influence energy efficiency and energy intensity is an essential task for policy makers, if countries are to meet the targets set by the Kyoto Protocol. SUMMARY Energy efficiency is the rate at which energy is converted into marketable products or services. It is expressed in energy consumption per unit of output.When applied to energy conversion processes, it refers to the ratio between energy input and energy output. Improved energy efficiency is good for economic growth. It frees up fossil fuel resources, thereby increasing energy supply security. It also has a positive environmental impact. Characteristics such as climate, geography, industrial structure and lifestyle complicate the comparison of energy intensity between one country and another. A highly energy-intensive country can also be energy efficient. The United States and Japan have comparable levels of technological knowledge and technical energy efficiency. Yet the energy intensity of Japan's economy is roughly half that of the US economy.This phenomenon can be explained by the "rebound effect". The rebound effect refers to the fact that improved technological energy efficiency does not translate into equivalent decreases in energy intensity, either at the sectoral level or at that of an overall economy.When efficiency improves, an energy service offered at the same price is, in effect, "cheaper" than before. Energy consumers adjust to the de facto lower price of energy services by demanding more of them. Multi-faceted policy objectives, such as maintaining economic growth while decreasing energy intensities, require multiple instruments. In addition to policies to promote new technologies, price based instruments need to be included in the policy-mix to offset the rebound effect. Economic instruments are also needed to provide incentives for the development and adoption of new technologies. Price signals and technological improvements should complement each other to achieve economic and environmental solutions. PAPER Document for the Standing Committee on Long-Term Cooperation IEA/SLT (2000)27, reproduced in Energy Policy 28 (2000) Elsevier Science Ltd., Oxford, pp. 457-469, and Energy Prices and Taxes, IEA, Paris 2000 9 Energy in the New Millennium THE BURDEN OF ENERGY SUBSIDIES KEY MESSAGES s Energy subsidies weigh heavily on economic efficiency, environmental performance and government budgets. s But few quantitative estimates exist of the real cost of energy subsidies and of how much money could be saved by their elimination. s Information is especially poor for developing countries, which are projected to contribute two- thirds of the world's incremental energy demand in the next twenty years. SUMMARY An IEA study of developing and transition countries shows how energy subsidies affect domestic consumption, carbon emissions and global energy markets. The study confirms that energy is under- priced in eight of the largest non-OECD countries: China, India, Indonesia, Iran, Kazakhstan, Russia, South Africa and Venezuela. It finds that consumer prices are approximately 20 percent below their opportunity-cost or market- based reference levels in the eight countries. Quantitative analysis suggests that the removal of energy price subsidies would reduce primary energy consumption by 14 percent and raise GDP by nearly 1 percent through greater economic efficiency. Subsidy removal would also cut CO2 emissions by 17 percent and would reduce local air pollution. The entire world would benefit from the elimination of subsidies in these eight countries. It would cut total world energy consumption by 3.5 percent and reduce global CO2 emissions by 4.6 percent. Subsidy removal in these countries would improve world energy security by reducing their need to import energy. It would also result in a more dynamic energy sector in each country. It would promote greater transparency and accountability, the accelerated development of technology and a more entrepreneurial approach to energy exploration, production, distribution and supply. Energy subsidies are usually intended to provide access to energy for the largest possible number of people or to protect economic activities via lower prices below the cost of supply. Removing subsidies would thus face strong political opposition. STUDY World Energy Outlook 1999 Insights – Looking at Energy Subsidies: Getting the Prices Right, IEA/OECD, Paris, 1999 10 Energy in the New Millennium COMPETITION IN ELECTRICITY MARKETS KEY MESSAGES s The goal of electricity market reform is to increase economic efficiency by reducing costs, improving investment decisions, fostering innovation, dismantling subsidies and, ultimately, promoting a more cost reflective pricing of energy. The performance of reformed electricity markets has generally been satisfactory. s Implementing reforms and encouraging effective competition takes time. During the transition period, governments must protect consumers and ensure security of electricity supply. s Electricity markets are gradually converging towards a common approach in which all consumers may choose their electricity supplier and which includes structural measures to encourage competition. s Many countries are reforming the regulatory institutions that oversee the neutrality and transparency of electricity regulations. SUMMARY Most OECD countries and many others are reforming their electricity markets. In the OECD, the emphasis of reform is on the rapid introduction of full consumer choice, on providing non- discriminatory third-party access to transmission and distribution networks, on separating electricity transmission from generation and supply, and on encouraging trading in electricity. The main benefits of market reform will occur in several years, as a result of better investment decisions. Large productivity increases are, however, already apparent, particularly in countries that have also privatised electricity companies. In OECD countries pursuing reform, electricity prices have generally fallen or remained stable. The performance of an electricity market depends on its structure. High concentration of generation assets leads to a lack of competition in the wholesale market, while less concentrated markets experience more intense competition. Reformers must look to structural policies such as divestitures and the opening of national markets to international trade and competition. Regulatory reform alone is not enough to generate competition. Critical to the success of reforms is ensuring that end-users benefit from competition. Increasingly, OECD countries are introducing end-user choice of supplier and other demand side measures to ensure that cost and price reductions along the supply chain result in lower prices for consumers. Regulatory institutions in the electricity supply industry are changing as new regulatory frameworks are developed. Reforms should result in fairer and clearer regulatory decisions. STUDIES Energy Market Reform: Competition in Electricity Markets, IEA, Paris 2001 Energy Market Reform: Regulatory Institutions in Liberalised Electricity Markets, IEA, Paris 2001 11 Energy in the New Millennium REGULATORY REFORM IN THE EUROPEAN GAS MARKET KEY MESSAGES s Reform of natural gas markets is now firmly underway in Europe, with the EU gas directive being implemented at national level. s Competition should bring a broader choice of supply for consumers, and a more efficient and transparent market, eventually leading to lower consumer prices. s Europe is increasingly dependent on imported gas from a few large producer countries.This makes it more difficult to introduce effective competition whilst sustaining security of supply. SUMMARY European gas demand will grow strongly over the next 20 years. Most countries are highly dependent on imported gas and this dependence is likely to increase.There are enough gas reserves within reach of Europe to meet future demand. But more supply projects must be developed for the period 2015-2020 and beyond. It is vital to attract investors while at the same time building open, competitive, liquid and flexible markets in gas. Because of its import dependency and expected strong growth in demand, Continental Europe needs to sustain or even increase the security of its supply. Ensuring a continued role for integrated gas companies will preserve diversity of physical supply and limit market fragmentation. Europe's gas market lacks upstream competition. But this could be encouraged by stimulating competition and trade downstream, and using plant or fuel switching to make demand more flexible. If there is sufficient arbitrage between electricity and gas following liberalisation of the electricity and gas markets, then this will also help to limit the power of gas producers. The EU gas directive sets out basic principles for reform of the European natural gas market, but allows countries to define the regulatory framework for gas supply systems best suited to their domestic markets.While the directive gives countries a wide scope in their choice of an access regime, as well as appropriate unbundling and pricing options, it is clear that the new competitive environment also requires strong independent regulatory institutions. STUDY Regulatory Reform: European Gas, IEA, Paris 2000 12 Energy in the New Millennium NUCLEAR POWER IN OECD COUNTRIES KEY MESSAGES s Nuclear energy provides 24 percent of the OECD's electricity supply.Yet its future is uncertain. Most existing nuclear plants are in a sound economic position. At current fossil fuel prices, however, new plants face economic difficulties in most countries. s The quest for greater energy security could favour the use of nuclear power, as it has done in the past. But concerns about plant safety, accidents, environmental protection and the disposal of nuclear waste have led nearly half of OECD countries to restrict the building of nuclear power plants. s While scientists generally agree that geological isolation is the best way to dispose of nuclear waste, progress on implementing this method is slow. s The fact that nuclear plants emit no greenhouse emissions may make them a more attractive option in the long run. SUMMARY Given the fuel prices that have prevailed in recent years, fossil-fuelled plants generally provide cheaper electricity than nuclear plants. But a sharp rise in fossil fuel prices could tip the economic balance in favour of new nuclear plants. So could new restrictions or taxes on carbon dioxide emissions or progress in reducing the capital costs of nuclear plant. The search for greater energy security could work in favour of nuclear power. Nuclear energy provides significant amounts of energy that would otherwise have to be purchased outside the OECD. The great environmental drawback of nuclear power use is the waste it produces. Its chief advantage is its ability to provide a clean substitute to fossil-fuelled plants that emit airborne pollutants. Despite the broad scientific consensus that geological isolation is the best way to dispose of high-level and long-life nuclear waste, progress on implementing these methods is slow. Efforts to combat climate change could alter the prospects for, and the perception of, nuclear power. A strong commitment to reduce CO2 emissions could have a positive effect on the prospects for nuclear power over the coming decades. STUDY Nuclear Power in OECD Countries, IEA, Paris 2001 13 Energy in the New Millennium MERGERS AND ACQUISITIONS KEY MESSAGES s The acceleration of energy mergers and acquisitions has increased the importance of large players in the energy sector. s In the short-term, the trend has adversely affected energy security by reducing oil stocks through "just in time" deliveries. In the longer term, however, larger firms may be in a better position to launch major projects to develop new supplies. s The creation of large firms could encourage the development of new technologies, such as solar energy, as cost-effective alternatives for reducing greenhouse gas emissions. s The IEA has a role in gathering and analysing data in order to deepen Member governments' understanding of how the energy sector is changing. Strengthening the relationship between the IEA and industry is very desirable, as would be the involvement of representatives of the financial community. SUMMARY In 1999, cross-border mergers and acquisitions in the energy sector totalled $121 billion, or 15% of the $798-billion in cross-border mergers for the year. The oil sector saw a flurry of deals in the last 20 months led by the Exxon Mobil merger and BP's link-up with Amoco and Arco. The giant VEBA-Viag merger in Germany illustrates the move to consolidation by large companies in the utilities sector.There were similar trends in the power-generation equipment, coal and oil-service businesses. In established sectors such as oil, financial performance can be improved by through economies of scale and expanding geographic reach. For power companies, market liberalisation and privatisation are increasing the range of markets and creating acquisition opportunities. New gas-electric "convergence" mergers are attempting to exploit synergies in retailing both commodities and in developing natural gas-fired power generation. Cost-cutting in the wake of mergers has reduced industry oil stocks. Mergers may well affect investment in energy infrastructure. Liberalisation, together with an increasing reluctance by governments to underwrite very large investments in energy production, raises the question of how such investments will be financed. Larger firms will find it easier to attract capital to finance investments in major new projects The very size of the new global energy firms means that their corporate policies and investment decisions will help to determine world energy trends, from the development of new energy technologies to reducing greenhouse-gas emissions. Regulatory authorities must scrutinise the impact of mergers and acquisitions on competition in the energy markets. STUDY Mergers and Acquisitions in the Energy Sector, background note prepared for an IEA seminar held 22 March 2000 14 Energy in the New Millennium INFORMATION TECHNOLOGY AND ENERGY KEY MESSAGES s The information and communication technology sector has played a critical role in the US economic success of recent years. s The staggering growth of information and communication technology in North America has also had an impact on energy consumption and energy intensity in the last three years. s That impact still has to be quantified. SUMMARY Internet use in North America shot up from five million users in 1993 to 136.9 million in March 2000. Some estimates indicate that Internet traffic doubles every 100 days. Although the information and communication industry accounts for just 8.3 percent of total output, it contributed nearly one third of real economic growth in the US between 1995 and 1999. Dramatic cost reductions in computers and communication equipment contributed to the low rate of inflation. In 1997 and 1998, annual economic growth in the US was nearly 4 percent. But energy consumption remained stable and energy intensity fell sharply.The move towards information- intensive activities – creating more value while consuming less energy – was responsible for roughly one third of energy intensity improvements in 1997 and 1998. The use of information and communication technology improves production processes through automation, computerisation and just-in-time manufacturing, and delivery. This leads to energy efficiency gains throughout the economy. The Internet and virtual space save energy and resources by reducing the need for physically stocking printed materials and by reducing the need for actual transportation. The fast-growing information and communication industry and the boom in Internet use have undoubtedly contributed to the recent sharp declines in energy intensity, but this has yet to be quantified. STUDY Information Technology, Internet and Energy Use, Paper for the IEA Standing Group on Long-Term Co-operation, November 2000 15 Energy in the New Millennium ENERGY POLICIES OF IEA COUNTRIES 2000 REVIEW KEY MESSAGES In 1999 and 2000, energy policy in the IEA Member countries focussed on two objectives: s Resolving energy-related environmental problems, particularly slowing carbon dioxide emissions from the extraction and use of fossil fuels; s Increasing efficiency in the energy industry through the introduction and extension of competition, while ensuring that neither the environment nor security of supply suffers in the process. SUMMARY These two objectives seem inherently contradictory. Environmental protection sometimes necessitates government involvement, while competition policy, by definition, relies on market mechanisms and shuns government interference. Some environmental policies raise energy prices to encourage energy saving, while energy-efficiency and competition policies aim to reduce energy prices. It can, however, be argued that the two objectives are complementary. In countries where coal is used in power generation, competition may encourage the substitution of natural gas for coal-fired power generation, thereby reducing CO2 emissions. Moreover, a competitive market can reinforce government policy initiatives.Whereas monopolies are relatively insensitive to economic instruments, because they can simply pass costs on to the consumer, firms operating in a competitive environment are highly sensitive to economic signals, from the government as well as from markets. The issue of energy security has varying implications for different Member governments, depending largely on each country's natural resources and the diversity of its import sources. STUDIES Energy Policies of IEA Countries, 1999 Review, IEA/OECD, Paris 1999 Energy Policies of IEA Countries, 2000 Review, IEA/OECD, Paris 2000 STUDIES Energy Policies of Finland, Hungary, Ireland, Italy, Japan and Switzerland, IEA/OECD, Paris 1999 Energy Policies of Canada, France, Luxembourg, Netherlands, Portugal, Sweden, IEA/OECD, Paris 2000 Energy Policies of Australia, Belgium, Czech Republic, New Zealand, Norway, Spain,Turkey, IEA/OECD, Paris 2001, forthcoming 16 Energy and Climate Change s CO2 EMISSIONS FROM FUEL COMBUSTION s GREENHOUSE GAS EMISSIONS FROM TRANSPORT s THE IEA EMISSION TRADING SIMULATION s CLIMATE CHANGE: NATIONAL POLICIES AND MEASURES s ENERGY AND SUSTAINABLE DEVELOPMENT s MARKET REFORM AND THE ENVIRONMENT 17 Energy and Climate Change CO2 EMISSIONS FROM FUEL COMBUSTION KEY MESSAGES s Global CO2 emissions from fuel combustion fell between 1997 and 1998 by 1.4% largely due to a drop in emissions from coal use in China and more modest reductions in the United States. This trend is still tentative and needs to be confirmed. Due to the stocks available at many mines that shut down in 1998, Chinese consumption and emissions may be significantly higher than the figures calculated by the IEA. s Worldwide emissions of CO2 from fuel combustion increased by 1.6% per year from 1971 to 1998. The OECD's carbon emissions increased by 0.9% per year over the same period. Total CO2 emissions increased by 6.7% from 1990 to 1998 for the world and by 8.7% for the OECD. s In 1971, the OECD share in world CO2 emissions was 64%.This share decreased to 52% in 1990 but increased again in 1998 to 53%. s The CO2/GDP intensity for the world decreased from 1.21 kg CO2 per US dollar in 1971 to 0.87 in 1998. For OECD, the intensity was 0.95 kg CO2 per dollar in 1971 and 0.58 in 1998. s In 1971, electricity and heat production contributed 28% of world CO2 emissions, industry 26% and transport 20%. In 1998 the shares were 37%, 20% and 24% respectively. For the OECD, the 1971 shares of electricity/heat, industry and transport were 29%, 24% and 19%. The 1998 shares were 38%, 15% and 27%. SUMMARY CO2 Emissions from Fuel Combustion contains statistics on CO2 emissions by sector and by fuel from 1971 to 1998 for more than 140 countries and regions. It provides comparisons between countries and regions made for selected indicators such as: CO2 emissions / GDP; CO2 emissions / population; CO2 emissions / Total Primary Energy Supply; CO2 emissions / kWh from electricity and heat generation. It also presents the evolution of CO2 emissions over the last 27 years, and highlights regional and sectoral trends. A diskette service is available that provides the complete historical series from 1960 to 1998 for Annex II countries and from 1971 to 1998 for other countries. The diskette also contains a detailed sectoral breakdown of CO2 emissions for individual fuels. STUDY CO2 Emissions From Fuel Combustion, 1971-1998, IEA/OECD, Paris 2000 RELATED STUDIES Energy Balances of OECD Countries, 1997-1998, IEA/OECD, Paris 2000 Energy Balances of Non-OECD Countries, 1997-1998, IEA/OECD, Paris 2000 18 Energy and Climate Change GREENHOUSE GAS EMISSIONS FROM TRANSPORT KEY MESSAGES s World Energy Outlook 2000 foresees that CO2 emissions from transport will grow by nearly half from 1997 to 2020. s Demand for aviation fuel is expected to grow particularly rapidly, contributing about one fourth of the overall increase in energy demand for transportation through 2020. s Fuel-efficiency improvements in cars and light trucks will account for the deepest cuts in carbon emissions. s Growth of demand for transport (both passenger and freight) will remain a long-term obstacle to emission reduction. Countries will need to put more effort into co-ordinating their policies on transport infrastructure, land use, congestion and the environment. s A key factor will be better educating the public about the connections between transport and climate change. SUMMARY Although the WEO reference case shows continued strong increases in the growth of CO2 emissions from transport, the WEO also identifies a number of policies that may become politically feasible in the next few years.These include further increases in fuel economy and selected policies to dampen travel demand as well as promote alcohol fuel. The combined effects of these policies would come close to stabilising transport energy demand and CO2 after 2010.They would reduce growth in CO2 by about 40% between 1997 and 2020. But even these measures do not appear likely to "turn the corner" and produce a downward trend in carbon emissions. Additional measures would be needed to achieve this. Many more government actions are identified in the forthcoming IEA study on policies and measures in the transport sector. Preliminary estimates suggest that an aggressive package of new policies could yield a strong downturn in CO2 emissions from the sector by 2020. Many of these measures may, however, be politically difficult to implement. Future IEA efforts could usefully focus on developing selected government actions to reduce CO2 emissions from transport within the Kyoto time frame. For example, the IEA could lead a multi- country effort to improve vehicle in-use efficiency. A study of options for reducing CO2 emissions from air travel could also be useful. STUDIES World Energy Outlook 2000, alternative transportation case IEA Transportation Energy Outlook, forthcoming IEA Policies and Measures Study, forthcoming 19 Energy and Climate Change THE IEA EMISSION TRADING SIMULATION KEY MESSAGES s A recent simulation of trading in carbon-dioxide emissions, involving officials and private sector players from seventeen countries, demonstrates the feasibility of a greenhouse gas emission- trading regime such as the one envisioned in the Climate Convention negotiation. s Results of the IEA simulation indicate that trading can achieve costs savings of over 60 percent. The results nevertheless indicate that optimal economic efficiency is not likely to be achieved. They also suggest that, even when trading is in place, the bulk of CO2 reductions will be undertaken domestically. SUMMARY In the simulation, run in June-July 2000, participants – from inside and outside the IEA and including private sector companies – were required to foresee emissions, then develop strategies to reduce them through domestic measures or CO2 trading or both.The simulation provided a realistic scenario: emission levels were not known in advance and policy decisions taken in one year only affected emissions in the following year. Trading sessions took place on a dedicated exchange. They covered the period 2000 to 2013. A relatively stable price quickly emerged. Hedging and speculation, common features of markets, were observed in the simulation. Annual emission inventories of countries provided information about overall compliance. Reliance on trading varied greatly between participants. In theory, participants in an emission-trading regime should adjust their domestic effort to the international price so as to minimise cost. The IEA's "real time" simulation helps explain why this may not be achievable. Parties need to start taking domestic measures before they can know what prices will be. Not all measures are fully adjustable to an international price. Economic growth, oil prices and climate affect emissions from one year to the next. Such uncertainty calls for a cautious approach towards compliance. Comparing this situation with an ideal setting – fully adjustable policies and full certainty about future emissions - revealed that the market was not at its optimum, in spite of already significant cost reductions. STUDIES Emission Trading: A Real Time Simulation, IEA document for COP 6 http://www.iea.org/envissu/cop6/emistr.pdf Greenhouse Gas Electricity Trading Simulation. An exercise in trading carried out by the electricity industry in collaboration with the IEA and ParisBourse SBF SA, Unipede/Eurelectric, Bruxelles, October 1999 20 Energy and Climate Change CLIMATE CHANGE: NATIONAL POLICIES AND MEASURES KEY MESSAGES s Although the Kyoto Protocol has yet to enter into force, most IEA Member countries have begun taking domestic measures aimed at reducing emissions of greenhouse gases from the energy sector. More than 400 such policies and measures have been adopted in areas such as taxes and regulation, voluntary agreements and research and development. SUMMARY Climate change continues to be the most important long-term energy and environment issue we face. Energy production and use is the major source of the greenhouse gas emissions that lead to climate change, and energy policy will play a major role in resolving the climate change problem. Under the Kyoto Protocol, adopted in 1997 but not yet in force, OECD Members have pledged to reduce their net emissions by more than 5% below 1990 levels. The study Dealing with Climate Change: Policies and Measures in IEA Countries lists over 400 of the actions undertaken in 1999 by IEA Member countries. It details the domestic implementation of the new market instruments established under the Protocol, such as the Clean Development Mechanism and emissions trading. It also includes direct domestic emissions reduction activities. Policies are classified according to energy source and end use as well. Each country has contributed to and endorsed the description of the country data describing its activities. So this report provides an authoritative source of information. While it is not a complete review, it does demonstrate the magnitude and diversity of the effort being made. The study also provides a "checklist" of good practices in policy making. These include: using market approaches to reduce the costs of meeting targets, using a mix of policies in a portfolio approach, establishing careful monitoring of the effect of measures, establishing strong institutions and promoting information exchange to maximise effectiveness. The sheer volume of actions is noteworthy. Unfortunately, the study suggests that even with this growing effort, it is by no means assured that the Kyoto targets will be met. Further action will be needed. STUDY Dealing with Climate Change: Policies and Measures in IEA Member Countries, IEA/OECD, Paris 2000 21 Energy and Climate Change ENERGY AND SUSTAINABLE DEVELOPMENT KEY MESSAGES s Energy has deep and broad relationships with each of the three pillars of sustainable development the economy, the environment and social welfare. s The IEA has several initiatives underway to identify the issues in reaching sustainable development in the energy sector, and to outline policy actions to help achieve that goal. s The results of this work show that we are not on a sustainable energy path unless some changes are made. SUMMARY The main objective of the ongoing work within the IEA is to bring a more concrete definition to what has in the past been largely a theoretical discussion on the links between energy and sustainable development.Among the Agency's initiatives are: a chapter on energy and sustainable development for the analytical report of the OECD Cross-cutting Project on Sustainable Development ; a book which will incorporate the broad range of work underway in the IEA on sustainable development; and a series of international workshops with the United Nations Environmental Programme on energy subsidy reform. The energy and sustainable development chapter of the OECD report concludes that, unless new actions are taken to avoid it, global energy demand will increase by 57 percent in the next 20 years, with most of the increase in fossil fuels. The growing energy role of non-OECD countries and the importance of energy services in alleviating poverty make this truly a global challenge. The IEA publication on energy and sustainable development will provide an update on several IEA activities to help render the energy sector more sustainable and to improve the sector's contribution to the wider objective of overall sustainability. The IEA Secretariat has done much analytical work in the area of energy-subsidy reform. Governments subsidise energy consumption and production to achieve what they see as important social-policy objectives. But these measures impose severe costs in economic and environmental terms.The IEA is broadening this analytical work as well as holding a series of regional workshops jointly with UNEP. The goals of the workshops are to better understand energy subsidies, to consider implementation issues, to explore differences among countries and to study country-specific experiences STUDIES World Energy Outlook 1999 Insights – Looking at Energy Subsidies: Getting the Prices Right, IEA/OECD, Paris, 1999 Analytical Report on Sustainable Development, Chapter 12, OECD, Paris, forthcoming Policies for Sustainable Energy Futures, IEA, Paris, forthcoming 22 Energy and Climate Change MARKET REFORM AND THE ENVIRONMENT KEY MESSAGES s The electricity sector produces a large share of total CO2 emissions. It would be possible to reduce that share sharply through changes to the fuel mix, improvements in thermal efficiency or reduction in electricity demand. s The effects of market reform on CO2 emissions reflect different national situations.They may be positive or negative.The final impact on CO2 emissions is unclear. s Countries need to develop innovative policies which ensure that environmental policy and market reform policy do not clash. SUMMARY Over the past decade virtually all IEA Member countries have introduced reforms in the electricity and gas sectors. Reforms aim at improving the economic efficiency and lowering prices of their services to industry and households. Simultaneously, a growing concern over the negative impact of greenhouse gases has led governments to agree under the Kyoto Protocol to limit their emissions, especially carbon dioxide emissions. Reform affects the technology and investment choices of energy companies, as well as their marketing policies, all of which can affect future CO2 emissions.To be fully successful, policies to limit greenhouse gases must not undermine market reform by excessively distorting competition. At the same time market reforms must take account of the need to mitigate emissions. In some cases, market reform may make reduction of greenhouse gas emissions even more difficult than before.As markets become more competitive and power producers seek to cut costs, voluntary environmental actions by power producers may become harder to sustain, On the other hand, more efficient use of fossil fuels to cut costs may contribute to reduced emissions. There is a wide range of options for reducing CO2 emissions from power generation.They run from absolute emission limits to measures encouraging higher efficiency in end-use. The measures can be combined with other policy objectives such as improving the local environment, increasing employment and limiting energy dependency. Growing competition does not imply a relaxation of cimate-change efforts. Rather, it evokes policies that minimise the cost of new environmental constraints without excessively distorting competition. SEMINAR Seminar on Market Reform and the Environment, February 2001 23 Energy Technologies s RENEWABLE ENERGIES FOR THE NEW MILLENNIUM s LONG-TERM R&D FOR RENEWABLE ENERGY SOURCES s THE CLIMATE TECHNOLOGY INITIATIVE s TECHNOLOGY AND CLIMATE CHANGE s CAPTURING AND STORING CARBON DIOXIDE s INTERNATIONAL COLLABORATION IN ENERGY TECHNOLOGY s INFORMATION CENTRES s ELECTRIC TRANSMISSION AND DISTRIBUTION s REDUCING STANDBY POWER s ENERGY LABELS AND STANDARDS s RESEARCH AND DEVELOPMENT IN OIL AND GAS TECHNOLOGY s BEST PRACTICES IN DEPLOYING TECHNOLOGY s BEST PRACTICES IN ENERGY RD&D s R&D AND TECHNOLOGY ISSUES IN TRANSPORTATION s THE IEA ENERGY INDICATORS s EXPERIENCE CURVES FOR ENERGY TECHNOLOGY POLICY s GOVERNMENT’S ROLE IN PROMOTING NEW TECHNOLOGY 24 Energy Technologies RENEWABLE ENERGIES FOR THE NEW MILLENNIUM KEY MESSAGES s Renewable energy markets are growing rapidly in the IEA and developing countries. s Successful government actions to support renewables have taken various forms, including demand stimulation through tariffs and quotas and reduction of transaction costs through streamlined permits and environmental rules. s Reducing the cost of renewables has swelled their market, but lower prices in themselves will not guarantee future growth.The IEA is examining the possibility of launching a collaborative international initiative to accelerate market growth for renewable energy. International co-operation through the IEA’s Energy Technology Collaboration Programme supports this effort.The IEA effort is now being co-ordinated with that of the G8 Renewable Energy Task Force s Improved co-operation between countries to develop renewable energy markets will accelerate cost reduction and deployment. SUMMARY Renewable energy technologies can serve many purposes. Renewables can supply bulk electricity, distributed generation, energy services for rural development, heat and transport fuel. Each of the main renewable energies is currently cost-effective in some specific markets, but none is yet broadly competitive. Some renewables are more cost-competitive than others. Governments seek to lower the cost of renewables in several ways. Increased funding for research and development, large-scale procurement programs, new market infrastructure and international co-operation can all reduce the cost of delivered energy. Governments can drive costs down by stimulating demand through portfolio mandates or through tariff and tax policies. All of today’s mature energy technologies were given such public support at one time and many are still subsidised. The IEA is considering convening a limited group of IEA and non-Member countries with good renewable resources and a strong commitment to exploiting them.The group would have five key aims: 1. Integrate the market at both national and international levels. 2. Co-operate and co-ordinate with concerned multilateral organisations. 3. Encourage the private sector to invest in technology and infrastructure. 4. Build the financial community’s confidence in renewables. 5. Increase public awareness of renewables’ benefits to society and to the consumer. STUDY Price and Risk Issues for Renewables, IEA, Paris 2001, forthcoming SEMINARS Conference on Renewable Finance in India, February 2001 Seminar on Tradable Renewable Certificates, February 2001 25 Energy Technologies LONG-TERM R&D FOR RENEWABLE ENERGY SOURCES KEY MESSAGES s Development of renewable energy sources offers benefits for energy security and in fulfilling commitments of the Kyoto protocol. s Commercialisation of renewable energies will produce social, industrial and economic benefits through the various phases of development, manufacture and market deployment. s Further research and development is required to advance renewable-energy technologies to the stage where they can truly become the next-generation option in the transition away from fossil fuels. SUMMARY The IEA’s Renewable Energy Working Party (REWP) organised a workshop in Paris on 11 October 2000 to clarify renewable energy R&D issues and foster increased co-operation between Member and non-Member countries. Participants in the workshop included representatives from the renewable energy projects of the IEA’s Implementing Agreements and prominent regional and business experts. Participants agreed that the world is beginning the inevitable transition to a sustainable energy system that will be largely dependent on renewable resources. Renewables technologies have made significant progress during the last few decades. They now contribute significantly to the energy mix of many countries. Hydroelectricity, bioenergy and geothermal energy are widely used.They account for several percentage points of the world’s total primary energy. Many existing technologies have been modernised and adapted to improve the cost effectiveness of renewable options. Newer technologies, such as wind turbines and solar photovoltaics, are rapidly improving their cost effectiveness. They are entering the market place at rates comparable to those for computers and mobile phones. Several billion US dollars in wind turbines and photovoltaic systems are sold annually. Emerging energy technologies using hydrogen, fuel cells, energy storage and hybrid systems are becoming realities.Their commercialisation stage is imminent. Additional R& D is vitally needed to speed the evolution of renewable energies to the point where they can double or triple their contribution to our energy needs. PAPER IN PROGRESS Developing a New Generation of Sustainable Energy Technologies: Long-Term R&D Needs, Proceedings of the 11 October 2000 IEA/REWP workshop, to be published in 2001 26 Energy Technologies THE CLIMATE TECHNOLOGY INITIATIVE KEY MESSAGES s The world needs sustainable markets for cleaner energy technologies. Technological change is not, however, a linear process. It involves a vast often unpredictable set of interactions involving countless players acting in many arenas at once. s Difficulties may arise at any point in these interactions. Impediments may include a lack of information, insufficient skills, lack of capital, absence of full-cost pricing and trade barriers. Other impediments can arise from a lack of understanding of local needs; risk aversion; and inadequate environmental codes and standards. SUMMARY The Climate Technology Initiative’s mission is to promote international co-operation for the accelerated development and diffusion of climate-friendly technologies and practises in line with the UN Framework Convention on Climate Change (UNFCCC). The CTI plays an important role in facilitating the successful transfer of technologies. In 1999 and 2000 CTI worked closely with the UN to organise regional seminars on climate-friendly technology. CTI was launched in March 1995 by 23 IEA/OECD countries and the European Commission. Recent and planned activities include: q Technology-transfer related side-events at COP 5 and COP 6 in 1999 and 2000, co-sponsorship of ClimateTech 2000 Pavilion in The Hague. q CTI/Industry Joint Seminars on Technology Diffusion: Asia and the Pacific, January 2000; Southern Africa, March 1999, Eastern Europe, July 1999 and May 2000; Latin America, March 2000. q Training courses: Asia, October 1999 and September 2000; Latin American and the Caribbean, March 1999; Eastern Europe, December 1999; Southern Mediterranean region, May 2000; Eastern Europe, September 2000. q Co-operative technology implementation plans are being developed using a bottom-up approach to identify technology needs and facilitate financing for near-term project implementation. A draft plan has been developed for the Southern African Development Community. q Website developed to improve access to climate technology information. q Events in early 2001 include a workshop on accelerating the deployment of renewable energy technology in India in February and a workshop on appliance energy efficiency standards and labels for Latin America to be held in Argentina in March. REFERENCES Search engine and publications located on the Internet at http://www.ClimateTech.net Proceedings from the Joint Industry Seminars WORK IN PROGRESS Technology without Borders: Case Studies for Successful Technology Transfer. 27 Energy Technologies TECHNOLOGY AND CLIMATE CHANGE KEY MESSAGES s Technology can make a significant contribution to reducing greenhouse gas emissions from the energy sector. But it can only do so if efforts to develop and deploy advanced energy technologies are redoubled and if technological advances are combined with measures that discourage the emitting of carbon. s Maximising energy technology’s contribution to emission reduction requires efforts with a near- term focus as well as work that will only bear fruit years from today. Both must start now and continue over time. Both government and industry must be involved. SUMMARY Technology has a critical role to play in reducing energy-related greenhouse gas emissions in the near term and in the long term. Advanced energy technologies make emissions reductions possible and reduce the financial burden associated with achieving them. Governments must encourage the use of efficient and cleaner technologies through economy-wide measures such as energy taxes and emissions cap-and-trade systems, through measures specific to certain technologies and economic sectors, or through a mix of measures. Price signals are likely to be a necessary component of government action. Many technologies that are commercial or near-commercial today could reduce emissions in the near term. But under business-as-usual trends, they will not be deployed widely enough for the Kyoto targets to be met. Measures to accelerate technology deployment will be required. Today’s efficient and cleaner technologies will go only part of the way toward achieving sustained reductions over time. Only a continuing commitment to long-term R&D, and support for deployment of new technologies once developed, will provide the substantial long-term reductions needed to lower the concentration of greenhouse gases in the atmosphere. Governments have a role to play, in co-operation with the private sector, in removing barriers to rapid and wide deployment of clean and efficient energy technology.They can act decisively in creating and stimulating markets for new technology and in supporting “technology learning”.They can do this by direct investment, as well as by setting market rules. More long-term R&D is needed to develop advanced energy technologies. Governments play a role in performing this work or in stimulating the private sector to perform it. STUDY Energy Technology and Climate Change: A Call to Action, IEA/OECD, Paris 2000 28 Energy Technologies CAPTURING AND STORING CARBON DIOXIDE KEY MESSAGES s Atmospheric concentrations of CO2 are expected to almost double between now and 2100. If carbon concentrations are to be stabilised by the end of this century at the point where they were just before the Industrial Revolution, the developed countries may have to cut their emissions by at least half. s Capturing and permanently storing CO2 emissions from fossil-fuel-fired power plants could provide very large, rapid reductions in carbon emissions and avoid rapid changes away from our fossil-fuel-based energy infrastructure. s A study by the IEA Greenhouse Gases R&D Programme has estimated that a new 500-Megawatt natural gas- or coal-fired power plant incorporating CO2 capture could achieve an 80% reduction in CO2 emissions to the atmosphere. s It would entail a reduction in electrical-generation efficiency of between 8 and 13% and an increase in capital costs of between 50% and 100%. It would also increase the cost of electricity generation by about 50% in natural gas and coal gasification power plants with pre-combustion capture and by about 70% in conventional coal power plants with post-combustion capture. SUMMARY The overall cost of CO2 capture and storage is estimated to be about $40 to $60 per tonne of CO2 emissions avoided, or about 1.5 to 3 US cents per kilowatt-hour.This compares favourably with other options, such as the widespread use of renewable energy sources. Carbon dioxide storage will only be effective if it can be ensured for several hundreds or even thousands of years. One promising option is to store CO2 in deep saline geological formations. Global emissions over decades, or even hundreds of years, could be stored in these and other geological formations. A number of environmental effects need further study, including the length of time the CO2 must remain stored; the effect of slow or sudden release of CO2 on atmospheric CO2 concentrations; the effect of drilling on the integrity of depleted oil and gas field caps; likely reactions between CO2 and underground minerals; and the nature of deep saline reservoirs and their impact on CO2 storage over time. STUDY Capture and Storage of CO2:What Needs to be Done? IEA Special publication for COP6, November, 2000 Technology Status Report on Carbon Dioxide Capture and Storage, UK DTI, 2000, for the IEA Working Party on Fossil Fuels, prepared by the IEA Implementing Agreement on Greenhouse Gases R&D 29 Energy Technologies INTERNATIONAL COLLABORATION IN ENERGY TECHNOLOGY KEY MESSAGES s International collaboration in energy technology is helping governments inside and outside the IEA to achieve the objectives of energy security, economic and social development, and environmental protection. s Collaborative projects, known as “Implementing Agreements”, contribute to the development of new energy technologies as well as to the deployment of clean technologies in the market place. SUMMARY In an increasingly interconnected world, national efforts to adapt to changes in the energy sector no longer suffice. The IEA provides a framework for collaboration on research, development and the deployment of energy technologies.The Implementing Agreements which the IEA sponsors offer the legal mechanism and the management structure for collaborative activities. There are currently some 40 active Implementing Agreements, involving 34 countries, 12 of them non- Members of the IEA, and the European Commission. Several new Agreements are being developed. Activities under the Agreements cover work on fossil fuels, renewable energy, efficient energy end- use, fusion power, electricity and transport, as well as the dissemination of information. In total, the programmes spend nearly US $150 million a year. A few examples: q In Canada, the CADDET (Centres for the Analysis and Dissemination of Demonstrated Energy Technologies) Analysis Report on Co-generation played an important role in the decision to install a 5 Megawatt co-generation unit, with substantial savings for the community. In the UK, information from CADDET was used by local authorities studying the implementation of a solid- waste incinerator, a small-scale hydro facility and landfill gas developments. q The Bioenergy Agreement has contributed to the understanding of biomass energy systems. Its work has been used in the development of guidelines for national greenhouse-gas inventories. It was a force for the inclusion of “sinks” in the Kyoto Protocol. q ETSAP (Energy Technology Systems Analysis Programme) has further developed computer models named MARKAL (for “market allocation”). These models have been used to perform analysis in support of national emission inventories and abatement studies. q The SolarPACES Agreement (Solar Power and Chemical Energy Systems) deploys START missions (Solar Thermal Analysis Review and Training missions), which promote deployment of solar systems producing electricity. Its major success to date has been the 130 MW-Hybrid Fossil Solar Thermal Power Plant project in Egypt, with private-sector participation and a $50 million grant from the Global Environment Facility. STUDIES Implementing Agreements, http://www.iea.org/techno/agreefr.htm International Energy Technology Collaboration: A Sampling of Success Stories, IEA/OECD, May, Paris 1999 IEA SolarPACES START Missions: A Case Study for IEA, IEA SolarPACES, November 2000 30 Energy Technologies INFORMATION CENTRES KEY MESSAGES s Information dissemination maximises the impact of research and development by enhancing the effect of joint collaborative work and speeds the rate at which new energy technologies are deployed. SUMMARY Collection, analysis and dissemination of information on energy and environmental technologies are important elements in the IEA’s collaborative work on energy technology. IEA international projects, known as “Implementing Agreements”, produce and disseminate technological information, but some projects focus more intensively on collecting technological data and disseminating them to a wider audience: q The Energy Technology Data Exchange (ETDE) provides a comprehensive bibliographic database on energy research and development. EDTE has recently developed the World Energy Base (EDTEWEB) and the Energy Information Sources (EIS), which provide web access to information on energy technology. q The Centres for the Analysis and Dissemination of Demonstrated Energy Technologies (CADDET) have several information activities, including CADDET-EE, which focuses on new energy-efficiency technologies, and CADDET-RE on renewable-energy technologies. q IEA GREENTIE distributes information on almost 8,000 energy technology suppliers whose products help to reduce greenhouse- gas emissions. q IEA Coal Research is a provider of information on coal technologies. In a recent survey, 73 per cent of its customers reported that the programme helped reduce the environmental impact of coal. q The IEA International Centre for Gas Technology Information (ICGTI) provides user-friendly access to gas technology information through an Internet-based system called GTI Online. It gives information on gas technologies covering the complete fuel cycle: from exploration to end-use. q Many other international IEA projects maintain important information programmes. The Greenhouse Gas R&D Programme recently published a promotional CD-ROM, containing information on climate change and mitigation technologies. STUDY AND LINKS International Energy Technology Collaboration: A Sampling of Success Stories, IEA/OECD, May 1999 IMPLEMENTING AGREEMENTS http://www.iea.org/techno/agreefr.htm ETDEWEB http://www.etde.org/ETDEWEB CADDET http://www.caddet-ee.org and http://www.caddet-re.org GREENTIE http://www.greentie.org/ Coal Research http://www.iea-coal.org.uk ICGTI http://www.gtionline.org/gti/main/main.cfm Greenhouse Gas R&D http://www.ieagreen.org.uk 31 Energy Technologies ELECTRIC TRANSMISSION AND DISTRIBUTION KEY MESSAGES s The reliability of electricity systems is fundamental to energy security generally. s Transmission and distribution networks face increasing difficulties that, in the absence of adequate new investment, could increase the risk of electricity-supply disruptions. s Research, development and (especially) demonstration of supporting technologies will be an important element in any response to these developments. Technology demonstration is an important area for government-private partnerships. SUMMARY The Group of Experts on Electric Power Technologies, organised by the IEA’s Committee on Energy Research and Technology, has been exploring the challenges facing electric power transmission and distribution networks and the technologies needed to overcome them. The growth of electricity trading, increasing network congestion and the increasing use of distributed and intermittent generation sources are making the management of electricity networks more complex. Electricity reliability increasingly involves not only sufficient generating capacity and continuous system operation but also adequate power quality (avoiding voltage disturbances). Maintaining a supply of low-cost energy and extending electricity services to people who currently have none are additional concerns. All these concerns arise in the context of an increasingly competitive market. Electricity markets will require increased power-transfer capability. But commercial, regulatory and environmental pressures are likely to impede its installation. Uncertainty about the systems’ future shape has already reduced the incentive to invest. Without investment, systems will need to operate closer to their technical limits. At the same time, more complex trading arrangements may increase power-flow volatility and congestion. Widespread use of reactive compensation and other devices to maximise transmission capability will make the transmission system more brittle, with reduced time available for corrective action. In these circumstances, the risks of system disruption could increase. More intelligent transmission and distribution systems will be needed to deal with decentralised and small-scale generation, with increasingly co-mingled energy and communication networks, and with distribution systems featuring embedded-generation sources. On the demand side, there will be more electrotechnologies, electric drives and DC micro-grids in offices, as well as increasingly automated households. The development of flexible system controllers and integrated control techniques and operator aids will be needed to increase system utilisation while maintaining reliability. Continuous measurement and real-time control are vital. STUDY Electric Power Transmission and Distribution:Technology and Security, OECD/IEA, 2001, forthcoming 32 Energy Technologies REDUCING STANDBY POWER KEY MESSAGES s Standby power – sometimes referred to as "leaking electricity" – represents a significant and growing share of electricity demand. Up to 10% of residential electricity use occurs while electric equipment is OFF or in standby mode. s Standby power in the residential and commercial sector is responsible for as much as 1% of the OECD’s CO2 emissions. s Large reductions in standby power consumption are technically feasible, are cost effective and can be achieved without sacrificing any of the features or amenities expected by consumers. s Since the market for most products with standby power losses is international, there is a need for internationally co-ordinated action. SUMMARY Increasingly, electrical devices are designed to draw power 24 hours a day, seven days a week. Often, much of this energy is consumed while the product is not being used by the consumer, while it is "standing by". Recent studies suggest that between 3% and 13% of residential electricity use in OECD member countries can be attributed to standby consumption. Electricity consumption in standby mode is often far higher than is necessary. For some products, existing engineering practices could reduce current standby power use at relatively low cost and without affecting how the product operates. Some IEA countries have launched programmes to reduce standby power in specific uses. By working together and with industry, consumers and other interested parties, IEA Member countries can help encourage the design and introduction of new, more efficient appliances that meet the needs of both customers and the environment.The IEA foresees that within 10 years, products with optimised power management will be the norm rather than the exception. International collaboration is essential to achieve this vision since many products and components are traded internationally. STUDY Things that Go Blip in the Night: Standby Power and How to Limit it, IEA, Paris,April 2001 PUBLICATIONS Papers prepared for the Standing Group on Long Term Co-operation, IEA/SLT/EC(2000)2 & IEA/SLT(2000)45 WORK IN HAND Third International Workshop,Tokyo, February 2001 33 Energy Technologies ENERGY LABELS AND STANDARDS KEY MESSAGES s Home appliances and office equipment consume at least 1100 TWh/year of electricity in IEA Member countries.This is the second fastest growing sector of energy use after private transport. s Some governments have used carefully targeted labels and standards programmes to slow the growth of electricity and gas use and CO2 emissions from residential and office products. s As labelling and standards programmes spread, the potential advantages of international co- operation become apparent. SUMMARY Energy-efficiency labels and standards for appliances and equipment are playing key roles in governments' strategies to meet energy and environmental goals. They are already widely used to improve the efficiency of home appliances and office equipment, and are increasingly being used for electric motors, home electronics and lighting equipment. Energy labels are in force in 37 countries; standards in 34 countries. The impact of labels and standards is increasing as countries expand and strengthen their programmes. Meanwhile, developing countries and countries with economies in transition are initiating new programmes. Details differ considerably from country to country because of market conditions, jurisdictional issues and policy preferences. In IEA countries, there are various combinations of comparison labels, endorsement labels, minimum-efficiency standards, moving-average standards, target values and negotiated agreements. This wide range of independent programmes opens up opportunities for improvement through international information exchange and collaboration. As labelling and standards programmes spread, the potential advantages of international co-operation become increasingly apparent. Increased co-operation on ratings, labels, targets and regulatory standards could increase effectiveness and reduce costs. Several forms of co-operation are conceivable, including: collaboration in the analytical methods for designing tests, labels and standards; co-ordination of implementation and monitoring efforts; harmonisation of test procedures; and harmonisation of the energy set points used in labels and standards. The usefulness and feasibility of international co-operation varies from product to product, but there are some wide-ranging general benefits: greater market transparency, reduced costs for product testing and design, enhanced prospects for trade and technology transfer and enhanced international procurement. STUDY Energy Labels & Standards, IEA July 2000 PUBLICATIONS Papers prepared for the Standing Group on Long Term Co-operation, IEA/SLT/EC (2000)1 & IEA/SLT(2000)45 Policies and Measures to Reduce GHG Emissions from Appliances, New IEA publication scheduled October 2001 34 Energy Technologies RESEARCH AND DEVELOPMENT IN OIL AND GAS TECHNOLOGY KEY MESSAGES s Hydrocarbon exploration and production has developed impressively over the last 50 years, but large oil and gas resources remain unexploited. s More hydrocarbon assets may be discovered, produced and brought to the consumer, provided that new technologies are developed.These technologies will lead to further discoveries of hydro- carbon reserves in all areas, but more specifically in deep and ultra-deep water, and in Arctic areas. s Further increases can be expected from the development of new technologies for production from unconventional oil and gas fields. s The oil and gas industry’s technology needs are broad and multi-faceted. SUMMARY In the drilling, production and transportation of hydrocarbons, all new technologies will aim for the minimum release of carbon dioxide and other greenhouse gases, and for minimum discharge of solid and fluid pollutants Global competition will be enhanced by cost reductions in each segment of the exploration-and- production cycle and by decreasing time-to-first-oil. The target is to reduce lead times from the current average of eight years to four years in 2010. Large, high-risk investments in the upstream business process demand the quantification of uncertainties. The success ratio of exploration wells is expected to increase from one-in-five today into one-in-three in 2010. Oil fields are currently being shut in with an average 57% of the oil still in place.The recovery factor can be increased from 43% to 55% in the next twenty years if the R&D effort keeps up with the challenge. Unconventional hydrocarbons are located mostly in Venezuela, Canada and China, in Arctic regions and on the Continental Shelf.The volume of hydrocarbons in heavy oil and bitumen, oil shales, gas hydrates, and as coalbed methane is ten times as great as that of known conventional reserves. It is therefore vital to develop specific non-polluting techniques to reach these unconventional hydrocarbons. STUDY Review of business needs in the upstream exploration and production hydrocarbons sector, prepared by CERT Advisory Group on Oil and Gas Technology (unpublished), 1999 35 Energy Technologies BEST PRACTICES IN DEPLOYING TECHNOLOGY KEY MESSAGES s Successful deployment is measured by acceptance in the market. When products or services are chosen by customers on their own merits, the deployment project has succeeded. s Technology-deployment policy rests on three cornerstones: analysing market barriers, fostering dialogue with market actors and creating opportunities for technology learning. SUMMARY Active deployment measures for clean technologies have worked well in many IEA countries. The Agency’s deployment-policy project reviews successful programmes and extracts the lessons learned to establish recommendations. Successful deployment begins by identifying the interests of many stakeholders and bringing them together to work for accelerated dissemination of a technology as well as improved performance and lower costs. Common interests of producers and consumers may be exploited by the removal of regulatory barriers, by improved communication between R&D providers and companies, and by better market research to determine consumer attitudes and needs. Ultimately, it is a combination of technology potential and customer acceptance that make an impact on the market and hence on the energy systems. Both terms of the equation are essential. Active deployment measures and policies have to be carefully crafted: q Coherent approaches. Measures motivated by energy-policy considerations are much more acceptable when they are also in line with policies for industrial development, environmental improvement and employment. q Improving feedback. Feedback helps producers to use R&D resources better. It can help both producers and consumers to learn by doing. q Demand-driven measures. Most consumers have little interest in energy issues per se, but would gladly accept energy-efficiency measures or renewable fuels as part of a package with features they do care about. In its Implementing Agreements, the IEA has a resource that could be of great value in developing and realising more active deployment measures. STUDIES All the case studies are found on http://www.iea.org/impag/deploy/index.htm. The User Name is “impag” and the Password is “brandy”. 36 Energy Technologies BEST PRACTICES IN ENERGY RD&D KEY MESSAGES s Governments continue to have an important role to play in energy technology research, development and demonstration (RD&D), particularly as patient investors in long-term R&D and as partners with industry in identifying and pursuing needed technology advances. s Wider and deeper RD&D collaboration is needed in support of common challenges. s Governments must ensure adequate in-house capability to deliver on their increasingly complex role in supporting energy technology RD&D. SUMMARY Government must ensure adequate long-term R&D, particularly in light of industry’s decreasing investment in it and the tendency for co-operation with industry to push the government R&D portfolio toward shorter-term, lower-risk projects. Measures to internalise the costs of environmental externalities would help stimulate industry to do more of its own long-term R&D. Until this occurs, however, there will be a role for government to act as a “patient investor” in work that will only bear fruit some years hence. Needed technology advances include not only the incremental improvements on which industry most often focuses but also “great leaps forward”. Another important role for government is to work with industry to set and pursue “grand challenges” that result in these leaps. Wider and deeper collaboration on energy technology RD&D is needed within and among countries. As industry becomes more global, the use of research to support particular national industries will become less important. Increasingly, research problems are common to many countries; collaboration makes efficient use of limited RD&D resources. The importance of transparency and of opening processes to all interested parties is increasing steadily as industry becomes more involved in setting RD&D priorities. Governments should also take advantage of the relationship between RD&D and deployment by stimulating markets for the fruits of long-term R&D and for available technologies, with special attention to the treatment of intellectual property. In 1999, IEA Energy Ministers called for more sharing of “best practices” and “lessons learned” on energy technology policy. The Committee on Energy Research and Technology has responded with the project, “Best Practices in Energy Technology RD&D”. STUDY Lessons Learned and Best Practices in Energy Technology Research, Development and Demonstration, IEA/OECD, Paris 2001, forthcoming 37 Energy Technologies R&D AND TECHNOLOGY ISSUES IN TRANSPORTATION KEY MESSAGES s Near-term cost-effective fuel economy improvements can be achieved in OECD countries. The IEA’s Policies and Measures study, which focused on three IEA Member countries (Germany, Denmark, and the US), found that fuel consumption in new cars and light trucks could be cut by at least 25% by 2010. Much of the benefit of fuel economy improvements could, however, be offset by continued increases in vehicle size, weight and power. s The gap between test performance and on-road performance of new light-duty vehicles has increased in the past and is likely to do so in the future. Additional equipment, such as air conditioning, is one reason for this. Fuel-efficiency targets and regulations need to focus more on the actual consumption of vehicles on the road. s Advanced technologies such as hybrid electric engines could lead to even greater fuel economy improvements and provide dramatic reductions in tailpipe emissions in the 2010 timeframe. s In the medium-long term, fuel cell vehicles may play an important role in curbing oil use and greenhouse-gas emissions. One key question affecting the success of fuel cell vehicles is cost, which must eventually be brought down to close to the same level as for conventional vehicles if this technology is to become competitive in the market. However, there may be an important role for policies to spur initial market adoption, which in turn can yield economies of scale and expertise that will help to speed cost reductions. s Future CO2-related policies need to take into account the full fuel and vehicle production cycle in order to guide markets to the best technology choices, and maximise the CO2 emission reductions achieved. SUMMARY With diverse technological options for automotive technology at an advanced research and development stage, market stimulation and introduction through different mechanisms is likely to become very important for the success of the different technologies over the coming decade. Elements of R&D analysis appear in each of the IEA projects listed below. Additional work in the future may include the role of government policies in stimulating bringing technologies to the market. STUDY Automotive Fuels for the Future, IEA, Paris 1999 World Energy Outlook 2000 (chapter 11: Alternative Transportation Case) IEA Transportation Energy Outlook, forthcoming IEA Transport Policies and Measures, forthcoming WORKSHOP Fuel Cell Policy, GEE/IEA workshop, Berlin June 2000 38 Energy Technologies THE IEA ENERGY INDICATORS KEY MESSAGES s Energy indicators are an important tool for analysing the interactions among economic and human activity, energy use and CO2 emissions. s Energy indicators, a set of disaggregated measures of how energy is used, are already employed by many IEA Member countries. The IEA’s role is to assist and internationalise these efforts through the maintenance of transparent international databases and through collaboration with other international organisations. SUMMARY Over the last five years the IEA has developed a series of energy indicators to be used as tools for studying energy-use developments.The main purpose of this work is to assist IEA Member countries in analysing factors behind changes in energy use and CO2 emissions. Indicators (and the associated databases) also reveal key couplings between energy use, energy prices and economic activity. This insight is crucial for assessing and monitoring past and present energy efficiency policies and for designing effective future action. The IEA is using the indicators in its project on “Domestic Policies and Measures for Meeting the Kyoto Target and Beyond”. The indicator databases are also a key element in a project to study how new and efficient technologies can reduce transport-related CO2 emissions. An important aim of the IEA’s work on indicators is to increase the transparency and quality of energy-use data. This provides a better basis for meaningful comparisons of energy and emission developments across countries, as well as a tool to measure progress in emissions reductions and efficiency improvements within one country over time.The IEA has worked with its Member countries and with the European Commission to ensure the official and consistent collection of data. The IEA is also assisting non-Member countries to improve their energy statistics and to establish energy indicators. Involved are countries in Eastern Europe, China and India, as well as APERC (Asia Pacific Energy Research Centre). STUDY Indicators of Energy Use and Efficiency, IEA/OECD, Paris 1997 The Link Between Energy and Human Activity, IEA/OECD, Paris 1997 39 Energy Technologies EXPERIENCE CURVES FOR ENERGY TECHNOLOGY POLICY KEY MESSAGES s Investment in the deployment of new energy-efficient technologies could drive their prices down and therefore provide new cost-effective systems for the stabilisation of carbon dioxide. s Government deployment schemes are one key to exploiting this phenomenon. s Large investments from public and private sources will be needed to develop new energy systems over the next two decades. s Fostering energy-efficient technology around the world will require concerted action among governments. SUMMARY The cumulative production of industrial goods or services steadily and progressively reduces their prices, a phenomenon known as the “experience curve”.There is evidence of this effect in all areas of industrial activity.The purpose of this project is to exploit the potential of experience curves as tools to inform and strengthen energy technology policy. Case studies on solar and wind technologies show how government deployment programmes have moved markets, initiating and accelerating the ride down the experience curve for these technologies. The studies demonstrate the need for governments to adopt a two-pronged policy, combining research and development with deployment strategies. Support for R&D stimulates work on still-untested technologies. Such efforts have already proven the technical feasibility of some energy-efficiency technologies. Many of those technologies are, however, still too expensive. Deployment policies will be needed to sustain them until they reach cost efficiency. Private-sector research can be stimulated by the push of public R&D and by the need to provide learning opportunities on the market, leading to cost- efficiency. Stimulation of private R&D requires both the push of public R&D and the pull of deployment programmes. Over time, deployment programs will become more and more important. Experience curves help in estimating the long-term costs of controlling CO2 emissions. Over a 40-to- 50 year period, a new energy system that stabilises carbon emissions may cost no more than a system built on fossil fuels. But following a low-cost path to CO2 stabilisation will demand very large “learning” investments. If such investments are not made, there is a real risk that our energy systems will permanently lock in fossil technologies and lock out climate-friendly technologies. The IEA project has led to new initiatives. Experience-curve analysis for policy-making was the subject of an IEA Workshop in Stuttgart in May 1999.The workshop called on the IEA to launch international collaboration on Experience Curves for Energy Technology Policy (EXCETP). With the support of the IEA Committee on Energy Research and Technology, the Secretariat convened the first meeting under this rubric in Paris in October 1999. STUDIES Experience Curves for Energy Technology Policy, IEA/OECD, Paris 2000 C. -O.Wene, A.Voss,T. Fried, Experience Curves for Policy Making – The Case of Energy Technologies, Proceedings IEA Workshop Stuttgart 10-11 May 1999, Forschungsbericht Band 67, IER, Universität Stuttgart, 2000 40 Energy Technologies GOVERNMENT’S ROLE IN PROMOTING NEW TECHNOLOGY KEY MESSAGES s Free and competitive markets are the foundation of energy policy. As important as free markets are, however, governments have a continuing responsibility in energy technology. s They must create the right political framework, the right market framework and the right technology framework. They must provide the conditions in which technological innovation will flourish. s In the area of climate-friendly technologies, governments need to do more. If they are serious about restraining greenhouse-gas emissions, they must be prepared to intervene directly. This is especially the case where market instruments fail to reflect the full external costs and benefits of given energy uses. SUMMARY Traditionally, the role of governments has been opposed to that of the markets. Free-market advocates hold that Adam Smith’s “invisible hand” will ensure a sufficient energy supply and ensure that it is used efficiently. Market forces would also foster new technologies to resolve the environmental problems growing out of energy production and use, including that of climate destabilisation. Opponents of this view believe that energy markets are incapable of doing any such thing. The eyes of market players are riveted on short-term profits, this school argues, and they will do nothing to limit energy use or the carbon dioxide emissions that cause climate change.The State must shoulder the burden. Only government intervention, in the form of taxes, regulations, and subsidies can reverse the historical trend of rising energy use and emissions. The truth lies somewhere in between. Technologies already exist to achieve many of the necessary changes in the energy sector required to meet the goals of the Kyoto Protocol. But those technologies will not be deployed unless governments create framework conditions that can mobilise society behind those goals. To this end, governments must unequivocally signal their long-term environmental commitments. Governments must also put in place the right market framework, notably by eliminating counter- productive subsidies. On the technological side, governments can provide direct support for long-term research and development.They can offer temporary subsidies that give new technologies a chance to improve performance and reduce costs.They can promote large-scale deployment of climate-friendly technologies through public purchasing policy. SPEECH Technological Progress and Energy Challenges:The Responsibilities of Government, Speech by Robert Priddle, IEA Executive Director, at the 1999 European Conference of Energy Economics, Paris, 30 September 1999 41 Energy in the Wider World s OPEC'S RESURGENCE: A NEW THREAT TO CONSUMERS? s THE PRODUCER-CONSUMER DIALOGUE s TUMULTUOUS TIMES IN WORLD OIL MARKETS s INTERNATIONAL OIL TRADE s HIGH OIL PRICES AND DEVELOPING ECONOMIES s RUSSIAN ENERGY POLICY DEVELOPMENTS s OIL AND GAS IN THE CASPIAN AND BLACK SEA REGIONS s CHINA'S WORLDWIDE QUEST FOR ENERGY SECURITY s INDIA, A GROWING INTERNATIONAL PLAYER s SOUTHEAST ASIA GAS s DEVELOPING COUNTRIES AND CLIMATE CHANGE 42 Energy in the Wider World OPEC'S RESURGENCE: A NEW THREAT TO CONSUMERS? KEY MESSAGES s High oil prices threaten global economic prospects, especially those of the oil-importing developing countries. OPEC's efforts to control oil prices have created an artificially tight market which is vulnerable to external events such as strikes, accidents or geopolitical incidents.Artificially high oil prices also lay the seeds for another boom and bust cycle. s The idea of managing the oil markets misses a major point: oil markets are unstable by nature.The instability is derived both from internal factors and external ones, such as weather, economic events unrelated to the oil market, and non-oil geopolitics. s The best market management is no management at all. OPEC and other producers would do the world and themselves a favour by allowing the market freely to respond to market signals. SUMMARY Considered moribund just two years ago, OPEC was, by July 2000 at the summit of its strength and influence. Oil prices have more than tripled in eighteen months.The market has become so sensitive to OPEC actions that a word from a key OPEC Minister may send oil prices up, or down, by several dollars. In the 1970s, OPEC's efforts to control the market led to boom and bust cycles, rather than stability. Its actions since 1997 are likely to have the same results. High prices today will lower global demand and increase non-OPEC production. As it becomes economic to exploit more expensive reserves, the cartel will lose market share and revenue. In a high-price environment, some OPEC members will be tempted to increase production to regain lost revenue. This will undermine the cartel's cohesiveness. Prices will collapse again. Under duress, cartel members will regain their discipline and the cycle will start again. The relationship between producers and consumers is no longer so confrontational as it once was. OPEC and IEA share information. The two groups agree on the need to build better mutual understanding. Both recognise the world's need for OPEC oil - and for increasing quantities of it in the years ahead. Both seek stable prices; prices acceptable to consumers and yet sufficient to generate capital for adequate investment in future supply. Both recognise the need for revenues that can maintain economic and political stability in single-commodity producer economies. But key areas of disagreement exist too. Consuming countries do not accept production cuts by a cartel as a route to price stability. Nor do they believe that such a strategy will work. SPEECH OPEC's Resurgence: A New Threat to Oil Consumers? Speech by Robert Priddle, IEA Executive Director, at the German Society for Foreign Affairs, Bonn, 4 July 2000 RELATED SPEECHES Certainty or Change:Which Governs Oil Demand Growth? Speech by Robert Priddle at the Middle-East Petroleum and Gas Conference, 5 March 2000 Oil Prices: Reading the Ups and Downs, Speech by Robert Priddle at the CSIS/FTE Conference in Washington DC, 8 December 1999 43 Energy in the Wider World THE PRODUCER-CONSUMER DIALOGUE KEY MESSAGES s OECD countries will increasingly depend on oil from Middle East OPEC producers, who control two-thirds of global reserves.The IEA will need to ensure a constructive dialogue with Middle East OPEC countries. s Recent volatility in oil markets has hurt both producers and consumers. Producers and consumers meeting in Riyadh in November 2000 agreed that volatility is to be avoided. s Oil market stability emerged as a common goal at the Riyadh meeting. All parties agreed on the importance of more available, transparent and reliable data. SUMMARY OPEC provided 54% of OECD oil imports in 1999. According to the IEA's World Energy Outlook, OECD oil import dependence will grow to 70% in 2020. Middle East OPEC production will rise from 19.5 million barrels a day now to 46.7 mb/d in the same period. Five Middle East countries - Saudi Arabia, Iraq, Iran, Kuwait and UAE – hold two-thirds of global oil reserves. Despite their commanding position in the market, it is capital and know-how, rather than oil resources, that will determine whether these countries will be able to ramp up production to the level projected by the WEO. Even though OECD countries have drastically reduced the oil intensity of their economies, they are still concerned about oil prices. On the other hand, oil producers realise that they have not sufficiently diversified their economies and that their GDP growth, even in years of lavish oil prices, lags behind what is needed to create jobs for their growing populations. The unprecedented oil-price swings of 1999 and 2000 marked the seventh International Energy Forum, which took place in Riyadh in November 2000.The shared experience of undesirable oil- price extremes fostered a spirit of dialogue. Stabilisation of oil markets at prices that are acceptable to both producers and consumers emerged as a common goal in Riyadh. Controversial issues such as oil taxation, climate change and price-fixing mechanisms (price band) did not distract participants from the central issue of price volatility. The IEF recognised that more transparent oil data helps to stabilise oil markets and gave its political support to an initiative, which was launched by the IEA jointly with other organisations, and which led to a 2nd International Oil Statistics Meeting in Bangkok in April 2001. Saudi Arabia proposed to create a permanent secretariat for the Producer-Consumer Dialogue.The concept of such a secretariat is yet to be defined and accepted. Meanwhile, preparations for the 8th IEF in Japan in 2002 continue under the usual informal procedure. PAPER Producer-Consumer Dialogue, prepared for the Non-Member Countries Committee, IEA/NMC(2000)29. Paris, December 2000. 44 Energy in the Wider World TUMULTUOUS TIMES IN WORLD OIL MARKETS KEY MESSAGES s OPEC producers succeeded last year in coordinating their efforts to manage oil markets. While raising prices and revenues, their actions contributed to unprecedented market volatility. s Although crude-oil and products inventories were much lower than normal, refiners managed to supply consumers with adequate gasoline and heating oil. s Governments in some consuming countries sought to relieve pressure on consumers through tax breaks or the release of strategic stocks. s By the end of 2000, both consumers and producers agreed to the need for less volatility and more market transparency. SUMMARY OPEC made headlines last year by fine-tuning global oil markets with periodic adjustments to production quotas. Since early 1998, OPEC members have changed their quota allocations six times. Three reductions in 1998 and early 1999 were followed by three increases in 2000. The oil-price crash that prompted the first three cuts was itself the result of an earlier quota adjustment, in November 1997. OPEC achieved good compliance with its production targets. But it fell far short of meeting the stated goal of oil market stability. In late 1999 producers committed themselves to maintaining prices between $22 and $28 per barrel. In fact, oil markets have rarely been so volatile as in 2000, when prices dipped sharply then rose to 10-year highs. Through most of 2000 global inventories remained low.There were sporadic shortages of heating oil in the US Northeast, and retail prices shot up dramatically. Hampered by high crude prices and technical market factors that discouraged stockbuilding, US refiners failed to top up their gasoline storage ahead of the summer driving season. Overall, however, refiners succeeded in meeting consumer demand. With modern information technology, refiners can adjust much more quickly to changing crude prices and changing demand patterns. Moreover, the recent wave of mega-mergers is eliminating duplication of storage facilities. There have been some rough spots, nonetheless. Heating-oil prices spiked – albeit briefly – in January- February. Reformulated gasoline was in short supply. And, because of low stocks, retail prices soared, triggering protests by truck drivers and farmers in the US and Western Europe. Several European countries offered tax relief for oil consumers and contemplated the release of strategic stocks. The US increased aid to low-income households to help pay their heating bills and allowed oil companies to borrow crude oil from US strategic stocks. PUBLICATION Oil Market Report, January 2000 through April 2001 45 Energy in the Wider World INTERNATIONAL OIL TRADE KEY MESSAGES s More than two-thirds of internationally traded crude oil comes from OPEC countries and from a few non-OPEC countries that have co-operated with them in seeking to manage the world's oil supply since March 1998.When discipline prevails among these major oil-exporting countries, their efforts to manage supply can have a real effect on the market. s Three natural oil markets evolved in the 1980s: the Atlantic Basin market, the Mediterranean market, and the Asia-Middle East market. One result of this differentiation was that the Middle East became the "natural" supplier for Asian importing countries. SUMMARY OPEC's power to influence oil markets arises from its very large share in crude oil exports. Its share averaged 83% in the 1970's. It fell to 63% in the first half of 1980’s, then to 56% in the second half, as non-OPEC countries increased their production. In 1998, oil market players were made aware of OPEC's ability to influence oil prices.Although its market share stayed around 55%, OPEC gained the co-operation of countries holding another 15%. With a market share of 70%, OPEC cut production. Oil prices trebled by mid-2000. As for the physical flow of oil, three regional trading areas have evolved as "natural markets" increasingly relying on their own supply sources.The Atlantic Basin market is the largest of the three and the most dynamic. In the 1980’s, production increases in the North Sea helped form new trading patterns. In the 1990’s, Latin America and West Africa became integrated parts of the Atlantic Basin region. In the Mediterranean market, oil is transported from Algeria, Libya and Egypt to Spain, France, Italy, Greece and Turkey.This "natural" market grew stronger in the second half of the 1980’s.The Asia- Middle East market, with demand at 24mb/d, includes oil-thirsty Asia and the oil-rich Middle East. Before the financial crisis, Asian economies outperformed the rest of the world. There was equally rapid growth in oil demand, while the region's crude production levels remained stagnant. Asian countries imported ever-increasing quantities of crude from the Middle East, the natural supplier to Asia, and that trend will continue. Two Asian giants, China and India, deserve special attention. China became a net oil importer in 1993, and its import dependence will continue to rise. India's imports rose to 1.35 mb/d in 1999. In any future supply disruption, actions by those two countries would affect the Asian and global oil market substantially. It is encouraging that Asian countries, including China and India, are showing greater interest in energy security. SPEECH Speech by Tatsuo MASUDA, Director of Oil Markets and Emergency Preparedness, the Third Chinese Petroleum and Gas Conference, 17-18 October 2000, in Beijing 46 Energy in the Wider World HIGH OIL PRICES AND DEVELOPING ECONOMIES KEY MESSAGES s High oil prices affect all oil-importing countries, but they can hurt developing countries more than others. s Oil consumption in the developing countries increased rapidly over the last three decades, as a result of robust GDP growth, urbanisation and a substantial increase in motor vehicle ownership. s On average, oil-importing developing countries use more than twice as much oil to produce one unit of economic output as do OECD countries. s In OECD countries, the share of oil in total commodity imports (by value) has fallen from 13 per cent to 4 per cent since the late 1970’s. While equivalent historical data are not available for all developing countries, the share of oil imports is actually rising in many of these countries from levels already much higher than in the OECD. s Price subsidies, commonly used in developing countries to protect the poor, can obscure but do not neutralise the effect of oil-price increases. SUMMARY Developing countries suffer more from an oil price hike than do fully industrialised countries because they are reliant on their energy-intensive manufacturing sectors to spur economic growth.There are often no alternatives to oil. In developing countries an increase in the cost of oil can lead to deterioration in the trade balance and feed inflation. The replacement of non-commercial energy sources by modern fuels, such as the substitution of LPG for fuelwoods in cooking, has contributed to the rapid rise in oil demand in the developing world and made these countries more vulnerable to rising prices. Growth in oil demand has averaged some 5 per cent per year since 1970. While developing countries accounted for 26 per cent of world oil demand in the early 1970’s, their share is now 40 per cent and growing. With higher oil prices, developing countries may also be disadvantaged by deterioration in their terms of trade, leading to a fall in international competitiveness. Higher oil prices directly increase the foreign exchange cost of imported oil. Current oil prices have raised import bills in all oil-importing countries. The rise in oil prices added some $6 billion to the oil import bill of India in 2000. If the current price level were to be sustained, several oil-importing developing countries would register significant deficits in their trade balances.This, in turn, would put a damper on global growth, imposing a significant burden on the economic progress of developing countries, mainly in Asia. Price subsidies become more costly as oil prices go up, thus weakening the government budget. STUDY World Energy Outlook 1999 Insights – Looking at Energy Subsidies: Getting the Prices Right, IEA/OECD, Paris, 1999 47 Energy in the Wider World RUSSIAN ENERGY POLICY DEVELOPMENTS KEY MESSAGES s The success of Russia's economic recovery will depend on the government's ability to follow through on legal, fiscal and price reforms. This is especially the case in the energy sector, which must now meet increased energy demand after a decade of under-investment. s Improving energy efficiency will be a critical step toward coping with increasing energy demand in Russia. Removing energy subsidies and raising prices so that they cover costs is key to promoting more efficient energy use. Joint Implementation projects could enhance the attractiveness of energy-efficiency investments. s Lack of investment has led to lower reserve replacement and limited turnover in capital stock, trends that have exacerbated the sector's low efficiency and competitiveness. To attract the needed direct investment, Russia must establish a stable investment framework and enact and enforce its Tax Code. s The planned decrease of the share of natural gas in the Russian fuel mix has raised concerns about the ability of coal or nuclear power to fill the gap. The new policy raises concerns in terms of energy security, economics and local and global environment issues. SUMMARY The 2001 Survey of Russian Energy Policies will be the second IEA review of developments in the Russian energy sector.The 1995 Survey, now available on the IEA Website in Russian and English, was the first complete review of Russia's energy sector.The new Survey assesses developments over the past five years. It contains the main provisions of the Russian energy strategy to 2020. Whether Russia can achieve sustainable development remains an open question. Key issues are a lack of confidence in sustainability of economic growth and fears that necessary investments in the energy sector may not be forthcoming. Energy sector reforms have been lacklustre over the past decade. In a period of increased energy demand, if reforms are not implemented, it is not clear that Russia will be able to continue to meet both domestic and export needs to Europe. In the past, Russian energy use has been extremely wasteful. Energy intensity in Russia is more than three times that in OECD Europe.This is mainly because of the country's immense resource base and the absence of adequate pricing mechanisms. A sustained economic recovery will require legal, fiscal and price reform.These reforms would in turn facilitate restructuring efforts in the energy sector.The pace of reform is also important for the pattern of Russian emissions of carbon dioxide and other greenhouse gasses.This will be increasingly true in 2001 and beyond given the outlook for economic recovery. To attract needed inflows of direct investment, Russia must implement stable investment frameworks such as the Production Sharing Agreement.The Tax Code must be put in place and gain the trust of investors. STUDIES Energy Policies of the Russian Federation: 1995 Survey, IEA, Paris 1995 Main Provisions of the Russian Energy Strategy to 2020, Ministry of Energy of the Russian Federation, November 2000 48 Energy in the Wider World OIL AND GAS IN THE CASPIAN AND BLACK SEA REGIONS KEY MESSAGES s The Caspian region could become an alternative source for oil and gas of the same magnitude as the North Sea. s If Caspian oil and gas is to reach Western markets, the transit countries must attain political stability and establish predictable investment regimes. s Most countries "east of the Bosphorus" have succeeded in improving conditions for pipeline investment and operations. s To avoid congestion of the Bosphorus, additional pipelines may be needed in south-eastern Europe. Oil and gas transport systems, as well as electricity interconnections, foster political and economic integration. SUMMARY The Black Sea Energy Survey, June 2000, analyses the energy policies and sectors of Black Sea riparian states: Romania, Bulgaria,Turkey, Georgia. It also considers other countries, which lie along existing and future oil and gas export routes from the Caspian region to Europe:Azerbaijan,Armenia, and Greece. Existing infrastructure and pipelines under construction can transport Caspian oil production stemming from today's proven reserves. To be profitable, a new main export pipeline from Baku to Ceyhan would require additional oil reserves. It is too early to say whether the recent Kashagan oil discovery offshore Kazakhstan will make up those "missing reserves." Looming congestion in the Bosphorus will promote alternative transport routes, some of which are already materialising. Several Trans-Balkan pipelines have been proposed, but their success largely hinges on the region's political and economic stabilisation. STUDY Black Sea Energy Survey, IEA/OECD, Paris 2000 STUDY Caspian Oil and Gas.The Supply Potential of Central Asia and Transcaucasia, IEA/OECD, Paris 1998 WORK IN HAND South Eastern Europe/Balkans: June 2000 Joint IEA/BSREC Round Table on Regulatory Issues in Grid-Based Energy Industries, IEA/NMC(2000)22 Caspian Region: Recent Oil and Gas Developments, IEA/NMC(2000)9 The Energy Situation and Possible IEA Activities in South Eastern Europe/Balkans, IEA/NMC(2000)7 49 Energy in the Wider World CHINA'S WORLDWIDE QUEST FOR ENERGY SECURITY KEY MESSAGES s China is the world's second-largest energy consumer and a growing energy importer. China's near- term energy behaviour matters critically not only to its own citizens – who account for one-fifth of the world's population – but to the world at large. s Aware of its growing dependency on imported energy, China seeks a more prominent position in the global system of energy production and trade. Where it can, China seeks to open new connections to global markets. Increasingly, external energy policies are entwined in foreign economic and security policies in general. s In its search for additional hydrocarbon resources, China has sought links with the Middle East, Central Asia, Russia, ASEAN and West Africa. s It is therefore in the interest of China, of other Asian countries and of IEA Member countries to ensure that energy becomes a bridge for co-operation between China and the rest of the world, rather than a source of uncertainty. SUMMARY China's rapid growth over the past twenty years has unleashed surging demand for energy. The Chinese made strenuous efforts to exploit their domestic resources; but growth eventually overwhelmed them and led to rising oil imports. Within the next decade, China's oil imports are expected to grow rapidly and outstrip those of many OECD countries. Gas imports are also projected to increase as China switches to cleaner energy. Since the early 1990’s, China has been in search of external sources of energy supply, particularly of oil and gas. As its energy industries are more closely tied into global markets, price volatility and fluctuations elsewhere affect the Chinese energy markets more than during the country’s isolated past. Policy measures adopted by the Chinese government include reforms of its domestic energy industries, maximum development of its domestic resources, seeking foreign technology and investment, diversifying overseas suppliers, investing overseas in upstream activities and fostering political and economic links with major producing countries. The Middle East is emerging as the main supplier of China's crude imports. Russia, Central Asia, ASEAN and West Africa will also be sources of China's future energy supply. Trade and investment are the main elements in China's energy co-operation with the rest of the world today. Many joint – development projects are already in place in Kazakhstan,Turkmenistan, Iraq and Sudan. More ventures could soon follow. STUDY China's Worldwide Quest for Energy Security, IEA/OECD, Paris 2000 WORK IN HAND Joint IEA-China Workshop on Emergency Oil Stock Issues, Paris, 23-24 April 2001 50 Energy in the Wider World INDIA, A GROWING INTERNATIONAL PLAYER KEY MESSAGES s India will have to import 92% of its oil by 2020, up from 57% in 1997. Oil demand, currently rising at 6% to 8% per annum, will approach 5 million barrels a day in 2020 – more than 60% of Saudi Arabia's oil production today. s The Indian government seeks to diversify its sources of supply and also to boost the domestic supply of primary energy as well as final products. New energy supplies are slow in coming onstream, but progress on products is better and India's refining capacity is growing rapidly. Public and private companies are investing heavily in new LNG terminals in order to capture part of the Indian gas market. s India could play a leading role among developing countries in setting up emergency preparedness mechanisms. s Growing consumption of oil and gas means more CO2 emissions. Though India's emissions per capita are still among the lowest in the world, total emissions are already large and growing rapidly, particularly from coal combustion. Generating electricity from gas rather than coal would lower emissions. SUMMARY Final Indian consumption of oil surpassed 2 mb/d in 1999. Public companies still dominate India's oil and gas sector. Reforms in the oil sector began to stimulate production in 1991 by opening onshore exploration and production to private and foreign firms via production sharing contracts. The government is gradually withdrawing from refining and product marketing. Subsidies for petroleum products are slowly being reduced. As a consequence of its limited domestic production and its growing domestic refining capacity, India is becoming a major importer of crude oil. Natural gas use is rising faster than any other fuel in India's primary energy supply. Domestic production has been increasing by10% a year but is not likely to keep pace with domestic demand. India has decided to develop the import of LNG. If an adequate regulatory framework is set up, LNG imports could eventually provide close to half of India's needs. STUDY India – A Growing International Oil and Gas Player, IEA/SOM/SEQ/NMC(201)1 RELATED WORK World Energy Outlook, 2000, chapter on India (chapter 13) IEA, Paris 2000 51 Energy in the Wider World SOUTHEAST ASIA GAS KEY MESSAGES s Natural gas will play an increasingly important role in the energy mix of Southeast Asia as the region's economies resume their growth after the Asian financial crisis in 1997. s Governments in the region recognise the need to develop their gas resources and diversify their fuel mix, both to enhance energy security and to meet environmental goals. s Gas sales, at least initially, will target larger consumers, particularly the power-generation sector. s The interconnection of two of the region's national-gas systems is the first step in the progressive construction of a regional gas-pipeline system. SUMMARY The natural gas sector continues to undergo rapid change as Asian governments respond to the region's rapid economic growth and rapid growth in demand for energy. Increased concern about the environmental effects of energy consumption and a desire to diversify fuel shares has resulted in an increasing emphasis on natural gas, particularly in the power and industry sectors. The Asia Gas Study, of 1996, examined the current and possible future role of natural gas in the Asia region. It provided a detailed outline of the infrastructure, supply-and-demand outlook, policies, pricing, trade and investment for natural gas in Brunei-Darussalam, Taiwan, Indonesia, the Republic of Korea, Malaysia and Thailand. The South East Asia Gas Study, in 1999, was intended to supplement the 1996 study. It describes the current situation and future challenges in the gas sectors of Myanmar, the Philippines, and Vietnam.The Philippines and Vietnam intend to use natural gas to improve environmental protection and energy security through increased gas-fired power generation capacity. In Myanmar, the gas projects have been designed primarily for natural gas export to Thailand. The Myanmar-Thailand interconnection is the second natural gas interconnection in the Southeast Asia region, following the Malaysia-Singapore connection. And in February 2001, gas flowed from Indonesia's West Natuna field to Singapore. Step by step interconnections of this nature are planned elsewhere in the region, and will likely form the underlying basis for the Trans-ASEAN Gas Pipeline. STUDY South East Asia Gas Study, IEA/OECD, Paris 1999 PAST PUBLICATION Asia Gas Study, IEA/OECD, Paris 1996 52 Energy in the Wider World DEVELOPING COUNTRIES AND CLIMATE CHANGE KEY MESSAGES s Engaging developing countries in the struggle against unwanted climate change will be critical to solving the problem. So far, developing countries have been reluctant to commit themselves to limiting greenhouse-gas emissions. s The IEA has studied innovative options to engage developing countries in lowering their greenhouse gas emissions; the options would be equitable and economically efficient. s Case studies for China, India and Mexico show that otherwise beneficial changes in domestic energy policy in these countries could also lead to significant reductions in greenhouse gas emissions. SUMMARY The fight against global warming requires worldwide reductions in greenhouse gases. But most developing countries have so far refused to adopt limits on greenhouse-gas emissions. Recent IEA studies address two aspects of this issue. The first, conducted with the OECD Environment Directorate, assessed four alternatives to the fixed emission quotas of the Kyoto Protocol: 1. "dynamic targets" expressed as the greenhouse-gas content of a country's economic growth; 2. "non-binding targets" , which would allow countries to sell emission permits if they achieve reductions, but do not require them to buy permits if they exceed their targets; 3. emission targets for specific sectors such as power generation or industry; 4. commitments to undertake greenhouse gas reduction policies. The last two policies could be pragmatic first steps for a number of countries. The other two – dynamic and non-binding targets – are attractive because they could reduce overall emissions in a way that is consistent with equity and economic development.They would also allow developing countries to participate in international emission trading, hence contributing to lowering the cost of global efforts against climate change. A separate IEA study considers the climate implications of energy policies in China, India and Mexico. The work examines policies on cleaner power technologies, especially in coal; fuel switching; biomass and other renewable energy sources; energy efficiency; and transport. The study demonstrates that both local and global environmental benefits can arise from changes in energy policy – often through low-cost or no-cost action. STUDIES Philibert, C., Pershing J., Considering the options: climate targets for all countries. Climate Policy, Elsevier, Amsterdam, 2001 Energy policies: local and global environmental linkages in developing countries IEA/SLT(2000)53 INTERNATIONAL ENERGY AGENCY 9, rue de la Fédération 75739 Paris Cedex 15 Tel: 01 40 57 65 51 Fax: 01 40 57 65 59 http://www.iea.org