Growing national confrontations could undermine efforts to meet goals to reduce global climate change impacts, Statoil’s chief economist warned.
“We assume that if we don’t reach the [United Nations’ Intergovernmental Panel on Climate Change’s] 2º carbon reduction target, we’ll see increasing climate costs,” Eirik Waerness said during a presentation of the company’s 2015 Energy Perspectives at the Center for Strategic and International Studies.
The forecast, which outlines possible trends through 2040, uses three scenarios:
• Reform, which would involve governments’ adoption of tighter energy and climate policies and emission standards that would sharply increase energy efficiency, gradually raise carbon prices, and rapidly increase renewable energy development and deployment. This still would fall short of the IPCC’s 2º carbon reduction goal as global climate costs gradually increase and reduce economic growth toward the end of the period, Waerness said.
• Renewal, which would involve a rapid transition to green energy driven by global consensus and action through energy efficiency, reduced coal consumption, growth in no- and low-carbon energy sources, and transformation in electricity generation and transportation, driven by increasing carbon prices and energy and climate policies. “It is a world where we hardly use more energy than today in 2040, in spite of being more than twice as rich, and where the global energy use is on a sustainable path,” Waerness said.
• Rivalry, which he called “a story about continued geopolitical conflict and power struggle, with sanctions, slower economic development, less trade and focus on security of supply instead of on globally efficient solutions to common challenges.” Waerness said this could dampen energy demand, but also lead to greater national focuses on domestic sources with higher global carbon intensity as a result.
He said the range of outcomes from these scenarios during 2012-40 includes 2-2.9%/year average economic growth; and 0.2-0.9%/year total primary energy demand growth, reflecting 1.3-2.7%/year improvements in global energy intensities. Global oil demand could range from a 0.6% decline to a 0.4% increase, while natural gas increases its market share under all scenarios and grows 0.6-1.2%, he said.
Waerness said the Rivalry scenario replaced one called Policy Paralysis in Statoil’s 2014 Energy Perspectives, which was completed just before Russia annexed Crimea from Ukraine.
“In the last year, we’ve seen not only the US-Russia impasse, but also increasing deterioration within the Middle East,” he said. “Economic growth would be lost because of sanctions. A country’s measures to depend less on a supplier it doesn’t trust leads to more expensive sources or increasing reliance on coal.”
While such events make the Rivalry scenario look more likely, Waerness said the European Union also reached significant agreements, and the possible lifting of sanctions against Iran would have a significant energy market impact.
Necessary investments to meet climate targets could be significant, he added. Waerness said the International Energy Agency’s World Energy Outlook to 2035 said some $50 trillion would be needed worldwide to satisfy demand. “Coal is the one energy source where we can invest less,” he said. “We need much higher investments in renewables.”
Waerness noted that in the last 10-15 years, the oil and gas industry has grown four times as capital-intensive to produce essentially the same amount of energy. “This will not be a walk in the park,” he said.
He said Statoil’s forecast suggests government-imposed carbon costs could reach $50/ton, a level similar to what other multinational oil and gas companies project. “Something very exciting is happening technologically in renewables,” Waerness said. “The problem is that it’s relatively a very small part of the total global energy picture.”
Contact Nick Snow at firstname.lastname@example.org.