Climate Change and the Energy Industry
IL006 Climate Change Module: 1st November 2013
Professor David Elmes Warwick Business School [email protected] +44 (0)782 4540 996
Warwick Business School Agenda
The Energy Industry’s role in contributing to Climate Change Challenges and Opportunities Scenario Planning Future Turning points
Warwick Business School Atmospheric CO2 and global temperatures continue to rise
Warwick Business School Energy’s share in global emissions
The supply and use of energy makes up two thirds of emissions
Warwick Business School Forecast emissions are not on track to keep climate change <2˚C
With less than 80% of world emissions covered by the pledges of governments, the IEA sees temperatures rises of 2.8˚ - 4.5˚C within this century.
Warwick Business School Challenges & Opportunities for the Energy Industry today
Warwick Business School Population, GDP, Energy & Emissions Global Population 0.9% pa growth over 2010-2035 GDP OECD growth of 2.1% pa over 2010-2035
Non-OECD growth of 4.8% pa over 2010-2035 Energy 1.2% growth pa over 2010-2035, a 35% increase overall Carbon Emissions from fossil fuels Still rising: up 3.2% between 2010 and 2011 Expected Policies suggest warming of +3.6˚C with 81% “locked-in”
OECD/IEA, WEO 2012
Warwick Business School History and evolution of energy use: The mix today
Warwick Business School The decreases in energy costs that enabled mass use has historically taken > 25 years Retail consumer fuel prices in the UK 1800-2000 (p/kWh)
Fouquet and Pearson (2003)
Warwick Business School Unconventional gas – the big change recently, especially shale gas in the US
US Natural gas production by source, 1990-2040 (trillion cubic feet)
Source: EIA, AEO2013 (2013)
Warwick Business School Industry evolution to commoditisation has driven down prices in wind….
Warwick Business School …and Chinese solar PV capacity has overcome incentive effects
Warwick Business School Investment in renewable energy has risen but stalled and more is needed
Warwick Business School “Climbing the energy ladder” – energy use per capita vs. GDP per capita
Data, IEA
Warwick Business School Changes in global emissions 2011 to 2012
Warwick Business School Emissions per capita and per unit GDP
Warwick Business School But there are also more climate events with economic impact
NOAA (2013)
Warwick Business School …and more over time…
Warwick Business School …with increasing economic impact
Warwick Business School World energy flows
Warwick Business School Source: Lawrence Livermore National Laboratory/US Department of Energy (Smith 2011) So energy efficiency plays a major role in getting back on the 2˚C track….
Warwick Business School In developed countries, energy efficiency has already delivered major savings
Warwick Business School Further savings need investment across both supply and consuming industries
Warwick Business School Where do international negotiations stand with the UNFCCC’s Copenhagen Accord?
Target is a 2˚C temperature limit Short-term finance of USD 30 billion for developing countries up to 2012. Industrialized countries to mobilise long-term finance of USD 100 billion per year by 2020. Voluntary, national emissions targets for 2020 submitted 42 developed countries representing around 90 percent of emissions from that group 36 developing countries have communicated information on mitigation plans, either in economy-wide terms or in specific actions. “These targets and actions by 2020 are insufficient….” Heading more towards a 3˚C increase (Potsdam Institute for Climate Impact Research) “…….they nonetheless represent a clear indication that the world increasingly wants to move towards more sustainable, low- Warwickemissions Business economic growth.” School More negotiations in Cancun (2010), Durban (2011), Doha (2012)…. Pledges following the Copenhagen Accord – IEA comment in March 2010
And both the Dec 2010 Cancun, Dec 2011 Durban and Dec 2012 Doha meetings really just restarted the dialogue…. Source: IEA report to the 12th IEF Ministerial, Cancun, Mexico, 29-31 March 2010 Source: http://www.ief.org/whatsnew/Documents/BackgroundPaper2010_IEA.pdf
Warwick Business School Energy in the future: points from the market analysis Energy demand growth likely to exceed population growth Balance of energy supply and demand shifting globally A mix of energy sources at the global level for decades Heading towards a 4˚C temperature rise: a level with significant consequences Challenge of affordability, sustainability & security Aiming to make energy transitions at speeds not seen before Different energy paths as countries develop Efficient use is as important as alternative sources of supply The “developing” stage of economic growth usually includes government involvement in the energy sector Investment needed of at least $1.5Trillion every year for the next 25 years
Warwick Business School So how do companies make good strategic decisions in complex, changing markets?
Warwick Business School Managing in uncertainty
Forecasting Decision Trees Scenarios Vision-setting Options Pattern Game Theory recognition
Source: Courtney, H.G.; Kirkland, J; Viguerie, S.P. (2000) “Strategy under uncertainty” McKinsey Quarterly, June 2000
Warwick Business School One tool used is Scenario Planning… A scenario: a sequence of emerging events or an account of a projected course of action or events. Images of the future, or alternative futures Neither predictions nor forecasts but how the future might unfold. Insight, leading to more informed and rational action, is the foremost goal of scenario planning They are not forecasts and an individual scenario is not expected to be “right”
UNEP/IEA, Analysing Our Energy Future (2007)
Warwick Business School Scenario sets we have used at WBS to assess the paths that energy companies might take. The Shell 2050 & New Lens Scenarios An international company example The UK Foresight “Powering our Lives” Scenarios A government perspective The US National Intelligence Council’s Global Trends 2030 Scenarios A geopolitical perspective The Forum for the Future’s Climate Futures Scenarios A sustainable development perspective The Forum for the Future’s Climate for Development Scenarios A sustainable development perspective for emerging economies
Warwick Business School Forum for the Future: Climate Futures
http://www.forumforthefuture.org/projects/climate-futures
Warwick Business School Background
Forum for the Future The Scenarios A charity committed to Efficiency First sustainable development Service Transformation Partners with Redefining Progress businesses, cities and Environmental War public sector Economy Founding Directors Protectionist World Jonathon Porritt Sara Parkin Includes comments on ICT industry Sponsored by HP
Warwick Business School Efficiency First
Warwick Business School Service Transformation
Warwick Business School Environmental War Economy
Warwick Business School Redefining Progress
Warwick Business School Protectionist World
Warwick Business School Companies we have studied…. AES Corp ENI Next Era Energy Schlumberger Anadarko Enel NTPC Schneider Areva E.ON Oando Shell BG Group Essar Energy Occidental Sinopec BP ExxonMobil OMV Statoil Cairn Energy First Solar Ormat Suncor Centrica Gamesa Peabody Energy Suntech Chesapeake Gas Natural Pemex Suzlon Chevron Fenosa Petrobras Tesla CNOOC Gazprom PetroChina TEPCO CNR GDF Suez Petroplus Total ConocoPhillips Gulf Keystone Q Cells Transcanada Dong Energy Hess Reliance Tullow Duke Energy Iberdrola Repsol Valero Ecopetrol Lukoil RWE Vattenfall EDF National Grid Sasol Vestas EDP Nexen
Warwick Business School Future Turning points? The increasing importance of gas & renewables versus oil. The differences in energy demand (growth) around the world The business of less. The alternative of distributed energy. The uncertainty around transport alternatives. Volatility in policy making and regulatory frameworks. The continued influence of social volatility. The value of being a national company or a national champion. The challenge of ‘transition fuels’. Risks of undifferentiated strategies. The opportunity for “smart”, global power companies Warwick Business School Summary
The latest review of science sees temperature increases exceeding the 2˚C threshold where social and economic effects will be significant The making and using energy accounts for 2/3rds of emissions Changing the energy we use and using it more efficiently means investment of $1.5Tn every year for several decades Making those investments is an equal challenge for policy-makers and companies Scenario planning is one tool that business leaders and policy-makers are using to support decision-making in a
Warwickvery Business complex and uncertain world. School