Energy Sector: A Driver for Sustainable Growth

Didier Houssin

As political momentum builds for reaching a global climate change mitigation agreement in 2015, the International Energy Agency (IEA) wants to send a strong message: the energy sector can and must become a driver of sustainable growth. In 2013, all 28 IEA member countries took an important step by acknowledging collectively the significant role that the energy sector can play in limiting climate change. In the IEA Member Countries’ Statement on Climate Change, the ministers backed four energy policies proposed by the IEA that would keep climate goals alive without harming economic growth .

These policies show that it is possible to steer the energy system onto a new course. While worldwide attention is still focused on putting the global economy back on track, we must make decisions that support what we want in the future. What we do today will determine whether we can achieve the necessary decoupling of energy demand and economic growth. We must bring an end to unsustainable energy production and use.

Tracking Clean Energy Progress 2014 (TCEP 2014) is the IEA’s fourth submission to the Clean Energy Ministerial on global clean energy technology development and deployment. Together with analysis in this year’s edition of Energy Technology Perspectives (ETP 2014), we find growing evidence that a partial energy transition is underway – and that emerging economies have stepped into the lead, achieving the greatest gains in the past year.

Given the importance of fossil fuels for a long time to come, CCS is a critical component in the pathway to a sustainable energy system.

Emerging markets more than compensated for slowing or more volatile growth of renewable deployment in Europe and the United States. China accounted for the lion’s share of new installations, becoming the first market in the world for both wind and solar photovoltaics (PV). Asia as a whole deployed more than half of global solar PV additions in 2013.

Some 150 million electric 2-wheelers are already on the road in China, and deployment of electric buses is on the rise. A five-year Clean Air Action Plan (2013-17) for Beijing rules that out of the 600 000 new vehicles to be allowed in the city in the next four years, 170,000 should be battery electric, plug-in hybrid or fuel cell vehicles. In 2014, a quota of 20,000 new car registrations will be given to such vehicles.

But it is clear that some of the encouraging trends observed in 2013 are in dire need of renewed support. While the shares of solar photovoltaics (PV), onshore wind and electric vehicles (EVs) are still increasing, their growth rates are slowing. EV sales, for example, have slipped below the levels required to meet targets set under the IEA 2-Degree Scenario (2DS).

More troubling is the lack of progress in other areas that undermine gains in clean energy technology deployment. Despite advances in available coal- and gas-based power technologies, efficiency of fossil-based electricity generation in the past two decades has improved only marginally, in part because generation companies often choose less-efficient technologies for new plants. In the past decade, 60% (434 GW of 734 GW) of new coal capacity build was subcritical, the least efficient coal-fired power generation technology commercially available. In most cases, this is a straightforward question of short-term economic thinking.

We find growing evidence that a partial energy transition is underway.

Despite some new capacity, early retirement of other plants is causing nuclear generation to stagnate despite a record 72 reactors under construction in 2013. Modest capacity increase from new reactors coming on line was offset by retirements of ageing or non-profitable plants in OECD countries. Japan’s operable nuclear fleet remains closed and only around 2350 TWh of nuclear electricity was generated in 2012, a 7% drop from 2011 levels. Signs of renewed growth exist, however, as China and Russia push ahead with ambitious nuclear plans.

Development of carbon capture and storage (CCS) has stalled. All of these trends highlight inadequate political and financial commitment to long-term sustainability issues. Few positive major developments were seen in 2013, and policies necessary to facilitate the transition from demonstration to deployment are still largely missing. Eight large-scale CCS projects are likely to come on line within the next two to three years, which will bring valuable experience. Given the importance of fossil fuels for a long time to come, CCS is a critical component in the pathway to a sustainable energy system.

These examples emphasise that policy remains vital to the competitiveness of clean energy technologies. Clean energy, and in particular renewable power, is increasingly competitive with new-built conventional power plants. However, in Europe, decreasing wholesale prices originating from sluggish power demand, overcapacity, low CO2 prices and increasing penetration of renewables make any new investment challenging.

Achieving a sustainable energy system is still within our grasp, both in terms of viability and affordability.

As a consequence, policy incentives are still needed to drive progress in clean energy technologies. But the inability to agree on long-term clean energy policy goals and abrupt policy changes triggered by concerns over policy cost have deteriorated the clean energy investment environment.

I want to be clear: while this disappointing progress raises the overall challenge, we remain fully convinced that achieving a sustainable energy system is still within our grasp, both in terms of viability and affordability. Our revised 2DS under ETP 2014 shows that the energy system transition can still provide net economical savings to the global economy, if it is managed in the framework of a systems perspective.

What is needed is for high level policy makers and energy system stakeholders to agree to act together in taking the necessary steps to enable this vision to materialise. Most of the clean energy gains in the past year were made in the context of achieving domestic policy objectives, most often in emerging economies. We must build on this momentum to move toward a global low-carbon economy– one that brings economic prosperity while assuring a sustainable and secure energy future for coming generations.

Didier Houssin is the Director of Sustainable Energy Policy and Technology for the International Energy Agency (IEA).

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