International Energy Agency (IEA) released its annual World Energy Outlook (WEO) yesterday. The 2010 edition tries to look at what the world will be using for energy by 2035. Interestingly, the chief WEO baseline is what the IEA calls "New Policies" which assumes that the nations of the world will cut their greenhouse gas emissions by the amounts they pledged at the end of the failed Copenhagen climate conference last year. Looking over the IEA fact sheets, a couple of issues caught my eye.
The WEO states that global fossil fuel subsidies totaled $312 billion in 2009, and that was down from $558 billion in 2008 when oil prices spiked. For a more detailed analysis, take a look at this really depressing International Monetary Fund round up of oil and gas subsidies (although I am not at all sure about how the IMF calculates what it calls additional "tax subsidies.") So, according to the IEA, how do the subsidies break out?
In 2009, oil products and natural gas were the most heavily subsidised fuels, attracting subsidies totalling $126 billion and $85 billion, respectively. Subsidies to electricity consumption were also significant, reaching $95 billion in 2009. At only $6 billion, coal subsidies were comparatively small. The vast majority of these subsidies are in non-OECD countries, which are projected to contribute 93% of incremental global energy demand to 2035 in the New Policies Scenario.
Naturally, dumping subsidies would mean that consumers and businesses would pay higher prices which would dampen demand. By how much?
WEO-2010 estimates that a universal phase-out of all fossil‑fuel consumption subsidies by 2020 — ambitious though it may be as an objective — would cut global primary energy demand by 5%, compared with a baseline in which subsidies remain unchanged....Oil demand would be cut by 4.7 mb/d by 2020, or around one-quarter of current US demand.
Hooray! Let's do it!
On the other hand, the IEA report holds disappointing news for renewable fuels boosters:
In the New Policies Scenario, renewables-based generation triples between 2008 and 2035 and the share of renewables in global electricity generation increases from 19% in 2008 to almost one-third (catching up with coal). The increase comes primarily from wind and hydropower, though hydropower remains dominant over the Outlook period. Electricity produced from solar photovoltaics increases very rapidly, though its share of global generation reaches only around 2% in 2035. The share of modern renewables in heat production in industry and buildings increases from 10% to 16%. The use of biofuels grows more than four-fold over the Outlook period, meeting 8% of road transport fuel demand by the end (up from 3% now).
And the IEA says that the renewables will need to be subsidized:
We estimate that government support worldwide in 2009 amounted to $37 billion for electricity from renewables and $20 billion for biofuels. In the New Policies Scenario, total support grows to $205 billion (in year-2009 dollars), or 0.17% of global GDP, by 2035. Over the Outlook period, 63% of the support goes to renewables-based electricity. ...
Globally, government support to biofuels is projected to rise to about $45 billion per year between 2010 and 2020, and $65 billion per year between 2021 and 2035. Government support typically raises costs to the economy as a whole.
But what if we assume the nations of the world agree to be more aggressive and decide to try to limit accumulated greenhouse gases in the atmosphere to the equivalent of 450 parts per million (ppm) of carbon dioxide. The current level is 388 ppm, up from the pre-industrial level of 280 ppm. How much would the world need to spend to follow that energy production and usage trajectory?
In the 450 Scenario in this year’s Outlook, the additional spending on low‑carbon energy technologies (business investment and consumer spending) amounts to nearly $18 trillion (in year- 2009 dollars) more than in the Current Policies Scenario, in which no new policies are assumed, in the period 2010‑2035. It is around $13.5 trillion more than in the New Policies Scenario.
I continue to hope that perhaps next year the IEA will concoct a scenario just for fun in which all energy subsidies are eliminated.
Finally, take a look at the IEA's projected global energy mix for 2035 below. World primary energy demand increases by 36% between 2008 and 2035, or 1.2% per year on average.