Must read IEA report, Part 1: Act now with clean energy or face 6°C warming. Cost is NOT high — media blows the story

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"Must read IEA report, Part 1: Act now with clean energy or face 6°C warming. Cost is NOT high — media blows the story"

When the normally conservative International Energy Agency (IEA) agrees with both the middle of the road IPCC and more … progressive voices like Climate Progress, it should be time for the world to get very serious, very fast on the clean energy transition. But when the media blows the story, the public and the policymakers may miss the key messages of the stunning new IEA report, “Energy Technology Perspectives, 2008″ (Exec. Sum. here).

You may not have paid much attention to this new report once you saw the media’s favorite headline for it: “$45 trillion needed to combat warming.” That would be too bad, because the real news from the global energy agency is

  1. Failing to act very quickly to transform the planet’s energy system puts us on a path to catastrophic outcomes.
  2. The investment required is “an average of some 1.1% of global GDP each year from now until 2050. This expenditure reflects a re-direction of economic activity and employment, and not necessarily a reduction of GDP.” In fact, this investment partly pays for itself in reduced energy costs alone (not even counting the pollution reduction benefits)!
  3. The world is on the brink of a renewables (and efficiency) revolution. Click figure to enlarge.

eia-renewables-jpeg.jpg

I do feel vindicated that the IEA’s 450 ppm ‘solution’ is quite similar to the one I proposed (here), though I do have some differences with them–they think hydrogen cars are part of the answer!

“RADICAL AND URGENT” CHANGE NEEDED TO AVOID CATASTROPHE

Probably the biggest difference between the IEA and the U.S. Energy Information Administration is that the EIA lives in a fantasy world where oil production can continue growing forever and greenhouse gas emissions are not something an energy agency needs to factor into planning. The IEA, however, lives in the real world, as its new report makes painfully clear:

Unsustainable pressure on natural resources and on the environment is inevitable if energy demand is not de-coupled from economic growth and fossil fuel demand reduced.

The situation is getting worse…. Baseline scenario foreshadow a 70% increase in oil demand by 2050 and a 130% rise in CO2 emissions…. a rise in CO2 emissions of such magnitude could raise global average temperatures by 6°C (eventual stabilisation level), perhaps more. The consequences would be significant change in all aspects of life and irreversible change in the natural environment.

In short, business as usual energy policy leads to atmospheric CO2 concentrations of 1000 parts per million or more, and that is the end of life as we know it on this planet (See “Is 450 ppm politically possible? Part 0: The alternative is humanity’s self-destruction“).

THE SOLUTION LOOKS EXPENSIVE BUT ISN’T

Where the media really blew the story is the cost. Yes, $45 trillion sounds like an unimaginably large amount of money — but spread over more than four decades and compared to the world’s total wealth during that time, it is literally a drop in the bucket — 1.1% or one part in 90 of the world’s total wealth. Indeed, the IEA notes that one reason the dollar value of the investment is so high is “in part due to the declining value of the dollar.” [Not to self: How diabolical of President Bush -- by weakening our economy he has increased the total dollar cost of action on climate, thus encouraging inaction!]

And while the additional investments seem high, “they do not represent net costs.” They are not a pure negative hit to global GDP. That’s because “technology investments in energy efficiency” and many low-carbon power sources “reduce fuel requirements.” In all the scenarios the IEA considers,

… the estimated total undiscounted fuel cost savings for coal, oil and gas over the period to 2050 are greater than the additional investment required (valuing these fuels at Baseline prices). If we discount at 3%, fuel savings exceed additional investment needs in the ACT Map scenario [in which CO2 emissions in 2050 only return to 2005 levels].

Also, the IEA scenarios “show a more balanced outlook for oil markets.” Indeed in the BLUE Map scenario [hey, don't blame me, I didn't come up with these names], where CO2 emisisons in 2050 go to half 2005 levels, we get “oil demand actually 27% less than today in 2050.

So what exactly is the net GDP reduction of the BLUE Map (450 ppm) scenario? The IEA doesn’t say, but given how close their analysis matches the IPCC’s, it would seem quite reasonable to concluded it is of the same order of magnitude as the IPCC’s — 0.1% of GDP per year or less (see “Absolute MUST Read IPCC Report: Debate over, further delay fatal, action not costly“).

And, again, that does not include the enormous value to the planet of avoiding catastrophic — 6°C — warming, or the value of reducing urban air pollution, such as smog and particulates, or the value of starting to get us off our oil addiction before peak oil drives prices to economically ruinous levels.

THE PRICE IS WRONG

Finally, you may have read that the IEA’s price of CO2 needed to get a 50% cut in global emissions by 2050 is $200 a ton up to even a startling $500 a ton (see Pielke here or WSJ here). In fact, those are both the cost at the margin for the final few billion tons of CO2, and the $500 figure assumes “technology pessimism” (and, I’ll argue, has other flaws). The key point is that

… the average cost of the technologies needed for BLUE Map is much lower than the marginal, in the range of USD 38 to USD 117 per tonne of CO2 saved.

That’s right, if the aggressive technology strategy turns out more successful than not, the average price of CO2 emissions reductions might be as low as $38/ton of CO2 in the 450 ppm case.

Although the IEA report is a very detailed analysis by some of the best energy experts and energy economists working on the issue — and although their analysis and conclusions are quite similar to mine — I don’t agree completely with their proposed solution and hence its likely cost, especially from a CO2/ton perspective.

What exactly is the IEA’s solution, and why is it a tad off? That will be the subject of Part II.

[Note to Marketwatch: You write, "A whopping $45 trillion investment would be required to reduce the world's carbon dioxide emissions by 50% by the year 2030, the International Energy Agency said in a study released Friday." That would be 2050, not 2030.]

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23 Responses to Must read IEA report, Part 1: Act now with clean energy or face 6°C warming. Cost is NOT high — media blows the story

  1. paulm says:

    heres an interesting report that is a bit more pessimistic by the Stockholm Network thinktank ….

    http://www.guardian.co.uk/environment/2008/jun/08/climatechange.greenpolitics

  2. Roger Pielke, Jr. says:

    Joe-

    The report has a long list of new “technological breakthroughs” (the phrase that it uses) in its Annex C needed to achieve its costs estimates. Does your endorsement of its cost estimates mean that you also accept its assumptions that such breakthroughs are needed?

    Also, the report assumes a spontaneous decarbonization of the global economy to 2050 of about 1.8% per year. This takes care of about 53 Gt CO2 in future emissions reductions, more than the 48 Gt it calls for. There is an order-of-magnitude play in the cost estimates as a function of assumptions of energy intensity decline. No one knows the future, but clearly, different assumptions could lead to different results.

    see sciencepolicy.colorado.edu

    None of this is an argument against action, but it is an argument against misleading people with rosy scenarios — if $45 trillion can be called “rosy”.

  3. Joe says:

    Roger — We have been through this before. No, we don’t need “technology breakthroughs” as the word is normally used (some of IEA’s “breakthroughs” aren’t breakthroughs). But I will discuss this in a later post.

    Second, your use of the word “spontaneous” continues to mislead. You label all changes beyond “frozen technology” as “spontaneous.” That makes no sense.

    The issue is why the changes in energy efficiency and decarbonization occur in the IEA (and IPCC) scenarios beyond “frozen technology.” As the IPCC explains, “The range labelled ‘frozen technology’ refers to hypothetical futures without improvement in energy and carbon intensities in the scenarios.”

    The key point here is that frozen technology includes existing technology that has not yet been deployed, as well as improvements to existing technology, as well as new technology. Is it somehow a mistake for the IEA and IPCC to assume that people will actually keep deploying existing technology that turns out to be economical, or that they will continue improving existing technology as they have for centuries, or that they will develop new technologies?

    Of course not! Especially with energy prices as high as they are now unlikely to get higher in coming decades and especially if the world introduces a high carbon price (as the IEA recommends) and if there are new policies aimed at promoting technology deployment and removing barriers to things like energy-efficient technologies that are already cost-effective (as the IEA recommends).

    Indeed, the higher the future energy prices, the more investments today save everybody large amounts of spending in the future.

    Again, I don’t really understand the purpose of your analysis. If you were right, and if you want to avoid 6°C of warming, then the obvious conclusion is to start sooner. You always sound like you are trying to discourage people from taking action.

  4. Roger Pielke, Jr. says:

    Hi Joe-

    1. Semantics again — I am pretty sure that EIA’s 5 page list of needed “technological breakthroughs” has something to do with “technological breakthroughs” but perhaps you can parse that for us.

    2. I’d be interested in hearing from you what actions will lead to future energy intensity declines resulting in the assumed decreases but ***that are not already on the EIA list for getting from the BASELINE to the BLUE scenario***.

    Care to offer a few?

    NOTE: There is already assumptions about “deploying existing technology that turns out to be economical, or that they will continue improving existing technology as they have for centuries, or that they will develop new technologies” — the EI declines require steps not on the mitigation list of actions — otherwise you’d be double counting.

    No hand waving, just give me some specifics.

  5. Lou Grinzo says:

    I have yet to get caught up on my reading (it is to laugh) and read the IEA report, but I always wonder in these cost/benefit cases if there’s any attempt to address the issue of multiplier effects. If we spend a lot of money on things like wind farms, solar farms and home installations, etc., that money doesn’t just get poured down a rat hole. It goes into the economy where it pays wages, and those workers then spend the money on other things, providing an overall boost to the economy. So there’s a considerable benefit from shifting spending from fossil fuels (basically sending it down a rat hole) to renewable energy, even aside from the huge, obvious climate issues.

  6. Joe says:

    Roger:

    0) You mean IEA, not EIA.

    1) A common mistake, Roger. I’ll get to this. But obviously one key area is that the IEA thinks we need hydrogen — and that requires multiple breakthroughs (cheap zero-carbon H2, H2 storage, fuel cells). Also, they believe we need a breakthrough in batteries. None of the experts I talk to believe that, and in fact, they all think we either have good enough technology now or will within 3 to 5 years. I drove a plug in that used ultracaps to bypass the need for any battery improvement.

    2) Easy to do. Again, Roger, we’ve been through this. Energy intensity historically improves without climate policy. Frozen technology is not a rational base case since technology is not frozen. So let’s take two examples. First, compact fluorescent light bulbs. They haven’t reached full market penetration yet. You want to assume they never will do so on their own absent climate policies. I think that makes no sense.

    Second, energy intensity gains have historically been HIGHER than assumed by IEA in their base case during times of high energy prices. Well, energy prices have gotten unbelievably high in the last two years, and we are already seeing a first every year over year decline in U.S. VMT.

    Indeed, the best way to see the expected impact of this is to look at the U.S. EIA’s change in energy demand forecast from last year’s annual energy Outlook to this year’s, which just came out.

    They dropped their annual projection of electricity demand growth from 1.8% per year through 2030 to 1.1% per year! And they are still assuming oil prices in 2030 considerably lower than they already are now!

    Your “NOTE” makes no sense. Frozen technology assumes none of those things happen. Yet all of those happen even in the absence of climate change.

  7. Roger Pielke, Jr. says:

    Joe-

    Sorry, increased deployment of compact fluorescent light bulbs (and other lighting technologies) are already part of the BLUE scenario, so you can’t use them for achieving the BASELINE (see pp. 546-548 in the IEA report).

    Care to try again?

  8. jcwinnie says:

    And, while the climate pundits quibble, did anyone notice that this is another attempt to place life as we know it on the planet on a balance sheet.

  9. Joe says:

    jcwinnie — this is not “another attempt to place life as we know it on the planet on a balance sheet.” Quite the reverse. This report is focused on explaining what is needed to cut global emissions in half by 2050.

    The report actually makes no value judgments on the cost of life. It does make clear the cost is not a high compared to the cost of doing nothing.

  10. Joe says:

    Roger –

    You have misread the report. In the baseline, energy intensity improves because there is some efficiency from better technology and also some saturation of residential energy demand. The non-baseline scenarios have a lot more efficiency penetration occurring a lot faster in them.

    See for instance the “Baseline scenario results by sector and region” pages 528 to 534. ON page 530, the report states,
    “in the baseline scenario, energy consumption in the building sector grew by 1% per year in the OECD countries between 2005 and 2050. This is slower than the growth in floor areas in both the service and residential sectors, implying a continuing improvement in the energy intensity of energy consumption in the sector to a mix of structural and efficiency effects.

    On page 532, the report notes that China already has efficiency standards and that sales of some large appliances “are experiencing slower growth as they reach saturation levels. Appliance efficiency improvements are expected to offset part of the impact of rising claims ownership on residential electricity demand.”

    And since you didn’t dispute my point on oil prices, I’ll also take that as an agreement on that point.

    Let me note that the report rather absurdly assumes “the oil price has been capped at USD 65/bbl for the period 2030 to 2050″!!!! Indeed, they seem to think the price in the baseline will be flat until 2030. Apparently the authors of this report didn’t read the other recent IEA reports on oil I have blogged on. Absent any strong climate policies, oil prices will be much higher — I will come back to this point in a later post.

    So I think we can move beyond this particularly quibble.

  11. jon says:

    @ jcwinnie:

    I was having the same thought. Personally I don’t care about the cost of saving our race. The way I see it, it all boils down to a metaphor.

    Some guy walks up to you and says he’s going to kill everybody you care about including you, unless you give him all your cash.

    Seems like an easy answer. Let’s get busy.

  12. Roger Pielke, Jr. says:

    Joe-

    I can see why you’d like to gloss over this point.

    You write, “In the baseline, energy intensity improves because there is some efficiency from better technology and also some saturation of residential energy demand.”

    Can you humor me my explaining what ‘better technologies’ you are referring to that are not already used in the mitigation scenarios that result in an energy intensity reduction of 1.8% per year for 45 years? Put another way, I need 15 wedges worth of emissions reductions to even get to the BASELINE. Or are they just going to occur automatically?

  13. Joe says:

    Roger — Now you are just wasting everybody’s time. I already quoted the report itself saying efficiency is in the baseline. Lots of low-carbon technologies are.

    Did you bother to even read the report? It has VERY detailed technology timelines as to what is in the baseline and what isn’t.

    Here are a few examples from the report. This is all in the baseline (please note this isn’t everything — I do have useful things to do other than reading the report for you).

    * 160 GW of Generation III+ nuclear plants by 2050.
    * 400 GW of wind
    * Huge amounts of efficiency in electricity and buildings (since “technologies already commercial”) — “improved thermal performance of new and existing dwellings,” “appliance efficiency improvements”
    * Improvements in heat pump technology that increase energy efficiency and carbon footprint by 5%.
    * 650 GW of solar space and water heating
    * Huge amounts of efficiency in transportation — 10% to 25% lower fuel use in 2050 from LDV fuel economy improvements. 5-15% market share of hybrids in 2050
    * 1000 Mtoe of 2nd generation biofuels

    I think that is enough, don’t you?

  14. jcwinnie says:

    Jon,

    Except for Jack Benny (Caveat: Comment requires cultural relevancy.)

    jc

  15. Roger Pielke, Jr. says:

    Joe-

    You continue to show that you do not understand the meaning of a BASELINE scenario. The numbers that are provided in the report (or by you) do not add up to reductions of 53 GtCO2. Consider:

    *Solar makes almost no contribution to the BASELINE (p. 367) [Once again by including solar in the BASELINE you confuse the BASELINE and MITIGATION scenarios]

    *Wind contributes 2% to the BASELINE (p. 343), and thus cannot by definition provide a large contribution to reductions implicit in the BASELINE

    *Nuclear increases by very little (1 TW/yr) (p. 284), and similarly cannot produce a large contribution to EI declines

    *Assumed decreases in fuel use are exactly the problem — they are just convenient assumptions, how will they occur separately from the ? (p. 428) How will vehicle miles traveled be limited to a tripling as the global economy increases by a factor of 4? Such assumptions are convenient, but they influence the conclusions in significant degree.

    You have provided maybe 3-4 GtCO2 (1+ wedge) worth of reductions in your list above, even including the unsupported assumptions. Is that enough? No, it is not. You need about 10-12 more wedges.

    When we are talking about the accuracy of a $45T price tag is it a waste of time to see if it is an accurate estimate?

    It is amazing that you endorse the results of a report that (a) calls for a range of technological breakthroughs requiring massive new investments in RD&D, (b) requires 90% penetration of fuel cell vehicles (for its $200/ton marginal cost estimate), (c) has 15 GtC of built-in wedges (but not explanation for the majority of these).

  16. John Mashey says:

    Just to make sure, and a question:
    I assume the full report is here, 100 Euros paper, 80 Euros PDF. At 650 pages, I may get paper :-)

    Also, I wonder if you’ve looked at Promoting Energy Efficiency Investments — Case Studies in the Residential Sector, 324 pages, which also looked interesting.

  17. paulm says:

    Lou Grinzo Said:
    ….. that money doesn’t just get poured down a rat hole. It goes into the economy where it pays wages, and those workers then spend the money on other things, providing an overall boost to the economy. ……

    This is one of the problems we don’t seem to want to accept. Consumerism will always (for the foreseeable future) generate by products that are not good for the environment. Unless we step down a large notch in our standard of living, based on ‘a material world’ then were suckered. Things are coming to a head here because we are reaching the limit of available resources base on our current population, technology and intellect.

  18. I’ll take this as a response to the cost concerns I expressed in comments on your earlier post. http://climateprogress.org/2008/06/02/the-self-limiting-future-of-nuclear-power-part-1/feed/
    IF the required cost is something like 1% of GDP, that’s eminently affordable. After all, total energy costs have increased by way more than that in the last year.

  19. David B. Benson says:

    Roger Chittum — Indeed the ‘cost’ is something around 1% of the world’s GDP. Fortunately, the is the so-called multiplier effect, so it is not as if the 1% is simply thrown away.

    A more serious concern is who is to bear these costs. Cann’t be those trying to live on $1–2 per day.

  20. NewYorkJ says:

    “None of this is an argument against action, but it is an argument against misleading people with rosy scenarios — if $45 trillion can be called “rosy”.”

    I would say throwing out “$45 trillion” without explaining what it means as is nicely done here is pretty misleading, as is failing to account for the tremendous economic benefit that will offset most of the initial investment, independent of the long-term economic benefit of global environmental protection. It’s also not a rosy scenario to assume strong technological advancement over decades, especially when signficant market incentives are introduced and R&D is ramped up significantly. Progress under these market environments may be underestimated.

  21. NewYorkJ says:

    Thinking out loud here…what are the cost savings of reducing oil demand to 27% of today’s levels, as the study indicates would happen by 2050? Global oil demand is 83 million barrels per day or about 30 billion barrels per year. IEA forecasts a 70% increase per business-as-usual or about 51 billion barrels per year. “27% less than today” would be about 22 billion barrels per year with savings of 29 billion barrels per year. At $150 per barrel we’re looking at $4.35 trillion per year saved on fuel costs alone but that of course very naively assumes price will be the same at hugely varying levels of demand. More realistic approaches would estimate the cost at a higher price per barrel at business-as-usual demand than the Blue scenario demand.

    A similar analysis could be done with coal and natural gas. While capital costs (initial investments) are high with renewables and nuclear, fuel costs make up a much higher proportion of costs for fossil fuel power plants. Nuclear fuel is lower in cost and renewables are essentially free.

  22. Finnjor says:

    Don´t be stupid and forget the potential energy of the Greenland and Antarctic ice masses.

    100 million Twh in Greenland and 1000 million Twh in the Antarctica.

    In any case the bushian BAU melts these icemasses into the high sea and you find yourselves drowned and so on. Take the ice and ship it for fresh water around the world. Energy and water and no climate catastrophe any more.

  23. Ric Merritt says:

    In all the parry and thrust, which I confess I only skimmed, unless I missed it Roger never answered Joe’s must fundamental point, which is that Roger always sounds as if he wants to delay action.

    As I have commented before, the clear responsibility of someone in Roger’s position of no little influence, is constant, unremitting, passionate advocacy of avoidance of dangerous human interference in the climate, providing of course that he believes such interference is likely. If he doesn’t believe that, he should be honest and let us know that he is at odds with nearly every respectable climate scientist. If he believes it, and fails the advocacy test, he’s a delayer 1000 in my book.