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Deciding the Future: Scenarios to 2050 Executive Summary World Energy Council 2007

Promoting the sustainable supply and use of energy for the greatest benefit of all

Deciding the Future: Energy Policy Scenarios to 2050

Officers of the World Energy Council Deciding the Future: Energy Policy Scenarios to 2050 Executive Summary André Caillé World Energy Council 2007 Chair, World Energy Council

Majid Al-Moneef Copyright © 2007 World Energy Council Vice Chair, Special Responsibility for Gulf States & Central Asia

Francisco Barnés de Castro All rights reserved. All or part of this publication may be used or Vice Chair, North America reproduced as long as the following citation is included on each copy or transmission: ‘Used by permission of the World Energy Asger Bundgaard-Jensen Council, , www.worldenergy.org Vice Chair, Finance Published 2007 by: Alioune Fall Vice Chair, Africa World Energy Council Regency House 1-4 Warwick Street Norberto Franco de Medeiros London W1B 5LT United Kingdom Vice Chair, Latin America/Caribbean ISBN: 0 946121 29 X C.P. Jain Chair, Studies Committee

Younghoon David Kim The full report is available on the World Energy Council website Vice Chair, Asia Pacific & South Asia at www.worldenergy.org.

Marie-José Nadeau Chair, Communications & Outreach Committee Chicco Testa Chair, Rome Congress 2007

Johannes Teyssen Vice Chair, Europe

Elias Velasco Garcia Chair, Special Responsibility for Investment in Infrastructure

Ron Wood Chair, Programme Committee

Zhang Guobao Vice Chair, Asia

Gerald Doucet Secretary General Deciding the Future: Energy Policy Scenarios to 2050 Executive Summary World Energy Council 2007

1 Contents

Contents 1

Introduction 2

Toward a new global energy regime 4

Dynamics of global energy markets 8

Achieving a future 10

WEC policy recommendations 12

Deciding the Future: Energy Policy Scenarios to 2050 Executive Summary World Energy Council 2007 2 Introduction

To meet the energy demand of all households worldwide, energy supplies must double by 2050. This is the most important finding of WEC’s Energy Policy Scenarios to 2050.

It is a myth that the task of meeting the world’s This may sound like a tall order, but there are enough energy resources around the energy needs while addressing world to satisfy the energy demand over the is simply too expensive and too daunting. With next forty-plus years. greater cooperation, greater investment, and clear rules for energy trade, together we can The challenge will be how to get these build a sustainable energy future. resources and energy services from where they are produced to the places that have the greatest need for them. Turning the traditional

The second most important finding is that while modelling approach upside fossil will continue to account for the down largest proportion of requirements through the next four decades, we To provide insight on the rapidly changing can not only double world energy supplies and environment in which the energy sector improve access but also effectively manage operates, beginning with Energy for Tomorrow’s and address climate World published in 1993, WEC has updated or change. built new energy scenarios. In 1998 Global Energy Perspectives, published with the The main driver to address this dual challenge International Institute for Applied Sciences will be higher energy prices. Higher prices will (IIASA) in Vienna, became a reference in the propel the developed world towards greater energy sector. energy efficiency and attract much higher levels of capital investment in infrastructure. But Starting in 2000, WEC went a step beyond, massive new levels of public and private providing a list of actions linked to these investment in research, development and scenarios, including three goals deployment of clean and more efficient which have now become widely understood technologies are also urgently needed. within and outside the energy sector, as the Governments must do their part by establishing 3 A’s: to meet global energy demand, future global rules of energy trade and setting a stable energy supplies must fulfill three criteria: price for carbon that is clearly understood by accessible, affordable modern energy for all; markets and investors. Government available energy, that is, reliable and secure engagement in these and other areas must be delivery; and acceptable - meeting social and encouraged while much deeper cooperation and environmental goals. integration within and among regions of the world, and between the public and private In this year’s Energy Policy Scenarios to 2050, sectors is essential. The private sector must be we decided to take a new approach to correspondingly engaged. scenarios, moving away from strictly statistical

Deciding the Future: Energy Policy Scenarios to 2050 Executive Summary World Energy Council 2007 3

It is a myth that the task of meeting the world’s energy needs while addressing climate change is simply too expensive and too daunting.

modelling to an approach that would take us into degree from country to country and region to the field for a bottom-up regional view of our region. energy future focusing on to ensure energy sustainability. These four approaches are represented by:

f The lion, a highly skilled, social animal A series of 20 workshops were conducted from that launches its forays after careful July 2005 to April 2007 in various regions of the planning and in a highly cooperative world. Over 400 principals from industry, effort, exercising great control and government, academia, NGOs and trade groups discipline, represents strong government gave their views of how to meet the need for engagement, together with close energy that is accessible, available, and cooperation and deep integration of the acceptable by 2020, 2035 and 2050. These public and private sectors, domestically experts came from the five global regions, and internationally. Africa, Asia, Europe, Latin America and the f The giraffe, a highly adaptable and Caribbean and North America, and from all independent creature that thrives in an facets of energy planning: energy production, unstructured environment and sees finance, academia, civil society, and opportunity at great distances, describes government. These qualitative views of how market-driven actions made with minimal policies can address future challenges to the government involvement but a high delivery of clean energy services in all regions of degree of cooperation and integration of the world were checked for consistency against the public and private domains, a mathematical model of the energy sector. In domestically and cross borders. addition, seven specialist groups provided f The elephant, a social animal with good current data on everything from climate change memory that relies mostly on its own well- to generation, energy price drivers and structured family unit with little patterns, transport and cooperation between families, finance. characterizes government deeply engaged in policymaking, but with little cooperation between nations or Introducing our global integration of the public and private policymaking framework spheres. f The leopard, a solitary creature who is Using the metaphors of four well-known animals, swift to act in isolation, and represents the of the WEC Scenarios group delineates energy responses with little government four possible approaches by decision makers to involvement and little cooperation and the challenges of delivering future energy in a integration of the public and private sustainable and secure way. These will vary by sectors.

Deciding the Future: Energy Policy Scenarios to 2050 Executive Summary World Energy Council 2007 4 Toward a new global energy regime

While each region has different priorities for Lion: strong global economy, developing its and services, the achievement of WEC’s 3 A’s depends in all global pacts on emissions, and regions on closer cooperation and integration. on dealing with As fresh talks get underway during the UN Framework for Climate Change (UNFCC) Overall, the lion scenario, with high levels of meetings about the post 2012 period, a major government involvement and high levels of finding of the WEC Scenarios should be kept in cooperation and integration, proved broadly the mind: regions of the world, with their varying best strategy for achieving WEC’s 3 A’s in all rates of economic and social development, do regions in the developed and developing world. not have the same policy priorities. Of the four scenarios this approach produces Africa, the least developed region, is principally the best estimates for maintaining a strong concerned with increasing access to energy. On global economy while reducing , the other end of the spectrum, Europe, with a tackling climate change, and improving access mature and well-developed regional economy, to modern energy sources and services. places more emphasis on energy acceptability in Governments and the private sector share their its policymaking. expertise and experience, bolstering regional energy integration. After intense negotiations, For the less developed regions, including Asia, international agreements are struck to curb Africa and Latin America, WEC regional findings greenhouse gas emissions and eradicate energy show that greater cooperation and integration poverty, although tensions persist. offers the best route to achieving WEC’s 3 A’s simultaneously. Reliance on international Africa – living standards improve, energy agreements and will not be enough to access leaps ahead accomplish these objectives. This also means more partnerships with developed countries to Strong economic growth leads to higher per transfer technology and expertise will be critical capita GDP, and as living standards improve, to fulfilling the right balance of these energy population growth rates decline after 2020. priorities. Better growth rates encourage more financing and technology transfer in the energy sector, Greater government involvement will also help and Africa adopts the latest technology. develop sustainable energy but will have less Governments tap the international public and impact, and developing countries will get the private communities, and in a common goal to eliminate energy poverty develop secure energy most benefit from it, since government support is supplies and services, and mitigate the effects of needed in countries with a less developed climate change. private sector.

Deciding the Future: Energy Policy Scenarios to 2050 Executive Summary World Energy Council 2007 5

Access to modern energy is significantly supply agreements on , which by increased, as governments commit to delivering 2050 helps the Continent wean itself off use reliable energy to more people, creating by 50%. incentives to develop energy technologies that suit local conditions, and mitigating the effects of Governments cooperate and commit to greater climate change with greater international opening of their energy markets, boosting assistance. Institutional financing and the private competition and lowering energy prices. Greater sector play a greater role in developing energy energy availability also results from pacts infrastructure. A more diverse energy mix is the between the consuming countries of Europe with result, with more for households, more energy-producing countries, so natural gas use biofuels for transport, and more natural gas for rises and coal use drops by half. Governments domestic and commercial use. craft clean energy policies that meet with the approval of business. Asia – economy still on a roll, clean development becomes top priority North America – greater assistance abroad, greater green efforts at home Large electricity supply projects dramatically increase the number of people who get access North America commits to greater efforts to to modern energy, while regional cooperation improve access to modern, reliable energy in leads to integration, which increases reliability of other regions of the world. International the system. Developed countries invest heavily cooperation leads to steady improvements at in regional energy infrastructure. Governments home in developing an environmentally adopt policies to improve energy efficiency, sustainable . curbing energy demand. The latest technology is adopted, thanks to better international Giraffe: freer markets lift global cooperation, although the shift to clean energy is held in check to some extent by robust GDP, population growth eases economic growth. With governments only minimally involved and Latin America and the Caribbean – pressure strong cooperation and integration regionally to protect the environment and internationally, efforts are directed at freeing up global markets to boost economic growth, Private sector involvement in the energy sector trade and affordable energy. Markets are is damped somewhat by close involvement of emphasized, and governments stick to market national and foreign governments. Population with little recourse to and growth recedes starting in 2020 as living subsidies. There is freer movement of goods standards rise. With greater access to and services worldwide, and energy sources are international financing, management and more diverse. Population stabilizes and declines technology, major energy infrastructure projects in some regions. are undertaken which increases access to reliable energy. Under national and international Africa – energy demand slackens, availability pressure, local policymakers place protection of improves, energy access for all achieved the environment high on their agenda. Due to strong involvement of the private sector Europe – energy gets more affordable, coal use internationally and continent-wide, innovation in declines is enhanced, reducing energy costs and boosting access to modern energy. Greater opening of energy markets to CO2 emissions stay high, as government international players leads to more competition involvement remains low and coal and natural and lower energy prices. Consumer countries sit gas use rises, although biofuels are also down with producer countries to strike long-term adopted for transport. Without government

Deciding the Future: Energy Policy Scenarios to 2050 Executive Summary World Energy Council 2007 6

incentives, renewables are adopted late. Energy integration by the private sector, governments efficiency and conservation are introduced due make a top priority by to more transfers of know-how and technology. diversifying supplies and suppliers, leading to faster economic growth than under the leopard Asia – oil and gas use rises, and so do scenario, but not as fast as with lion or giraffe. emissions Energy intensity eases everywhere for most of the period to 2050. Thanks to government Buoyed by strong economic growth, fossil pressure and government requirements to boost use rises in Asia, also due to better integration energy efficiency, energy demand rises initially of regional energy markets, increased energy and then tapers off. Lack of international trade, major investment and technology cooperation means emissions reductions remain cooperation. Electricity supply expands as limited. countries make more power available off-grid from . Africa – energy access improves, low carbon planning stagnates Europe – mostly status quo, low carbon technologies emphasized Lack of international cooperation stymies curbs in emissions, which region governments alone Consumers are more prosperous, as market do not have the power to rein in, while energy forces are kept in balance. Greater cooperation intensity in the long term gets worse amid lack of results in more efforts to deal with the effects of access to new technologies. Governments climate change, but progress is limited by the increase access to energy and domestic energy lack of strong government involvement. Europe production improves, although production remains satisfied with its energy system as it is. capacity is constrained by a lack of technology Latin America and the Caribbean – poor transfer and less effective international aid infrastructure holds prosperity in check programs. Low carbon policies are a low priority.

Governments do not act to reinvest in energy Asia – leap forward in power production and infrastructure, which damps economic growth. clean energy Energy intensity eases later on, due to a long timescale for technology transfers to take effect, Many governments commit to reducing fossil thus stabilizing energy demand at the same fuels and bringing on-stream large power plants, time. Private sector investments in energy rise, especially in China and . Emissions rise but not necessarily aligned with market needs. until late in the period to 2050 but then start to Investments in environmental protection lag. decline because of more efficient technology. Governments place high on the agenda long- North America – Clean energy becomes a term energy security, promoting cleaner fuels, bigger priority and renewable energy in rural areas. International and regional actors pressure North America to devote more attention to dealing with Europe – governments back energy companies, the effects of energy use. strike big bilateral deals Governments support the growth of energy Elephant: energy supplies companies and attempt large bilateral more secure and diverse, slight agreements in the region. Clean energy gets a cut in emissions modest lift from government intervention. But without greater international cooperation, In a scenario of strong government involvement governments are unable to propel long-term in energy planning but minimal cooperation and increases in reliable energy access.

Deciding the Future: Energy Policy Scenarios to 2050 Executive Summary World Energy Council 2007 7

Latin America and the Caribbean – energy Africa – little progress on increasing energy intensity and energy access worsen access

As agricultural and industrial exports rise and Technology transfer, foreign investment, and takes up a larger share of power access to clean energy are limited due to low generation, energy intensity does not improve. government involvement and low regional and Governments succeed in diversifying energy international cooperation. Improving access to supplies by adding more , solar reliable energy remains difficult, demand for heating, biofuels and natural gas early on, and non-commercial energy increases and poverty generating more power from coal and nuclear worsens. fuel later on. Lack of private sector involvement in research and development and lack of Asia – climate change gets short shrift investment in mitigating the effects of climate change mean the region makes very little The electricity grid is expanded, as slow but headway in developing technologies locally. It steady economic growth helps the region to also translates into low involvement by the meet rising energy demand. Lacking strong region in the Clean Development Mechanism, in government commitment, neither which industrialized countries help meet nor renewable energy are developed to the commitments to cut emissions under the Kyoto fullest. Energy security is a high priority and Protocol by investing in emissions reductions little attention is paid to climate change. projects in developing countries. Europe – clean energy develops late North America – energy infrastructure ages, private investment wanes Security of supply is hampered in 2020, as pursues its own agenda and Nordic Deeper government engagement coupled with markets become more insular. National low cooperation displaces private sector champions develop, blocking access to EU initiatives in developing energy infrastructure. As markets for non-EU companies. Close to 2050, a result, the energy system goes into decline, European energy companies develop more and reliability suffers. Without high levels of sustainable practices. cooperation, low carbon initiatives lose momentum in the middle of the planning period. Latin America and the Caribbean – energy rationing, high-energy prices

Leopard: slower economic This scenario is bad for the region’s economy, growth, higher emissions, energy consumers and the environment, leading greater uncertainty to the formation of cartels, energy rationing, high-energy prices, meager economic growth and inefficient, environmentally damaging In a scenario of light-handed government and little global or regional cooperation, countries are energy delivery. preoccupied with their own security of energy North America – setback in energy security supply. Governments adopt few energy taxes and subsidies. Uncertainty leads to slower Without clear lines of accountability to maintain economic growth and underinvestment in the and develop energy infrastructure, North energy sector. Energy intensity worsens in the America’s energy supply becomes less reliable. developing world, and declines less rapidly With low cooperation, security of supply is less elsewhere. Greenhouse gas emissions rise until assured than before. Clean energy develops later stages, when technology advances slowly and is not a priority for policymakers. eventually kick in. Energy demand continues to rise.

Deciding the Future: Energy Policy Scenarios to 2050 Executive Summary World Energy Council 2007 8 Dynamics of global energy markets

There was a general convergence of would also raise tensions in energy expectations among the WEC experts on the markets overall. shape of energy markets which lead to these Gas dynamics. • Tensions in the gas market will get worse Energy supply and demand in most regions, especially early 2020 through to the end of the planning cycle, At least by 2050, the world will need to double due to higher demand, as gas becomes today’s level of energy supply to meet increased an important resource to help reduce demand. global greenhouse gas emissions.

• More primary energy will be needed • Russia becomes a gas-based economy, initially in 2020, although some regions possibly raising tensions in European and will moderate this need by more energy Asian markets. efficient technologies. • Gas market tension rises in the Americas • To double energy supplies, policymakers from 2020, but eases from 2035 as must keep all energy options on the table. increased gas exploration brings more new supplies on stream.

Supply-demand balance Coal

Oil • Coal supplies are adequate to meet short- term demand until late in the planning • Greater government engagement will help period, but when demand is high, tensions ease tension in global oil markets, mount, stemming from environmental coupled with greater private sector pressures exerted by governments. cooperation and integration. • Later on, tensions mount as coal-to-liquid • However, more private sector technology increases demand. collaboration without greater government • If the capture and storage of carbon commitment may lead to a ratcheting up becomes feasible, demand will rise for of oil market tensions, as higher economic coal and supply-demand tensions will growth would lead to increased demand result. for energy and higher energy prices, rather than more widely available energy. Nuclear

• A large drop in oil production in the Middle • Tensions will grow in nuclear markets, East due to technical constraints or lack of especially in Asia and Africa, as the good planning on oil field development combined need for more secure carbon-

Deciding the Future: Energy Policy Scenarios to 2050 Executive Summary World Energy Council 2007 9

At least by 2050, the world will need to double today’s level of energy supply to meet increased demand.

free energy supplies results in increased demand. Supplies may be limited by slow government action on advanced standardised designs and by the inaction on the part of the international community in dealing with the dual concerns of waste disposition and weapons proliferation. Strong cooperation between international government and industry players is essential for developing a nuclear power sector in the developing world.

Renewables

• Energy from renewable sources will have an important impact on markets during the time period, but will not dominate any market.

• As consumer expectations grow for more renewables, supply-demand tensions rise as demand outstrips supply.

Non-conventional energy

• The use of non-conventional energy decreases in Asia, Latin America and Africa – first in Asia where progress is already underway and later in Africa because of a lack of effective government engagement.

Deciding the Future: Energy Policy Scenarios to 2050 Executive Summary World Energy Council 2007 10 Achieving a sustainable energy future

A doubling of supplies can be achieved by 2050 Setting Targets with cleaner and more efficient technologies, the underpinnings of a low carbon economy. The WEC study group believes the world can meet its requirements to double energy supply Fossil fuels should remain a fixture in a low while meeting commitments for creating a low carbon economy, produced more efficiently with carbon world. more effective management of greenhouse gas emissions. For the first time in the crafting of scenarios, the WEC study group has set targets for improving If there is government commitment and private accessibility, availability and acceptability. sector collaboration, energy intensity will continue to decrease. Targets will serve as benchmarks for policymakers to measure progress. These The energy mix will become more diverse, targets are realistic, and provided the political provided government assumes a strong role in will exists for government and industry to work RD&D and the private sector cooperates closely together in drafting the necessary policies and , and make the massive Choices of new energy technologies and investments required, they can be achieved. sources will be driven by higher energy prices, setting a global carbon price high enough to Accessibility affect choices without crimping economic growth, especially in developing countries, and Given that about two billion people have no considerations for higher standards for clean access to commercial energy and another one energy production. billion have only sporadic access:

The world’s energy mix will include more 1. Reduce by half the number of people without supplies of , nuclear power with access to a minimum level of modern energy satisfactory planning for spent fuel, biofuels, services by 2035 to one billion from two biomass and other renewables. billion (WEC defines this minimum as the annual electricity equivalent of 500kWh per A new framework for agreement on setting a person per year). value for carbon is critical, since without strong international cooperation and government 2. Halve again the number of people without involvement greenhouse gas emissions will not access to energy by 2050 to five hundred be managed, stabilised and reduced. million from one billion.

Deciding the Future: Energy Policy Scenarios to 2050 Executive Summary World Energy Council 2007 11

A doubling of supplies can be achieved by 2050 with cleaner and more efficient technologies, the underpinnings of a low carbon economy.

Availability

Given that most of the disruptions in delivering energy from source to end use have been related to underinvestment in energy transport infrastructure, such as pipelines and terminals, or due to market failures or political disagreements, WEC believes it is necessary to achieve the following:

3. Develop commercial and physical energy systems which are 99% reliable in Europe, North America, and parts of Asia by 2035. 4. Develop commercial and physical energy systems, which are 99% reliable in most of Asia, Africa and Latin America by 2050.

Acceptability

Given that environmental concerns will have a major influence on the future shape of the global :

5. Slow the rate of energy-related emissions growth significantly by 2020.

6. Stabilize CO2 emissions from energy use by 2035. 7. Reduce anthropogenic emissions to current levels or below by 2050. 8. Decouple emissions from economic growth by 2050.

Deciding the Future: Energy Policy Scenarios to 2050 Executive Summary World Energy Council 2007 12 WEC policy recommendations

Regardless of the scenario in place, to spur f Creating a new international greater development of clean and reliable framework for technology transfer energy in all regions, WEC uncovered seven from developed and developing countries policy areas that need to be addressed now, to that respects intellectual , helps raise investment in clean energy infrastructure. countries develop technologies meeting Each region will have its own local conditions to their energy priorities, and develops local take into consideration when crafting policies: skills. f Global dialogue on security of supply f Promoting energy efficiency using all and demand. Energy consuming available methods along the entire countries and regions are concerned energy chain, from exploration to final about the threat to their way of living energy use, including consumer without secure supplies. Likewise, energy awareness campaigns, financial supplying countries are concerned about incentives, standards and regulations. similar threats from a lack of assured demand. New international models of f Raising public awareness of how the cooperation that provide for long term transport sector can play an important security on both sides are in order. role in more , through changes in , energy f Taxation, legal and commercial efficiency measures, and technology frameworks that limit investment and development. fostering realistic expectations for risk and return. f Setting a global price for carbon high enough to drive prices and motivate

behaviour changes, and low enough not to hamper strong economic growth.

f Closer integration of energy markets regionally and globally for greater economies of scale in energy demand and supply. To achieve this a new set of international trade rules for energy will address concerns over how to reconcile global energy trading and investment with a rising wave of energy company re- nationalizations, the build up of national energy champions, and escalating tensions between producer and consumer countries.

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Promoting the sustainable supply and use of energy for the greatest benefit of all ISBN: 0 946121 29 X