EGNRET 49th Meeting Tokyo, Japan, 25 October, 2017 Update on APERC Activities and Energy Modelling for the 7th Outlook Dr. Melissa C. LOTT Assistant Vice President, Asia Pacific Energy Research Centre (APERC) melissa.lott@aperc.ieej.or.jp Head, Energy Statistics and Training Office, APERC Good afternoon, everyone. For those in the room whom I have not already met ---- my name is Melissa Lott and I joined APERC this summer as the new project coordinator for the 7th Energy Demand and Supply Outlook. As an engineer and energy modeller for the past twelve years or so, I have a deep appreciation for the complexities of analysing the different trajectories and pathways that our energy systems take around the globe. Today, I have been asked to give the group an update on the…… ----- events that we have hosted and ----- publications that we have released ----- and the progress that we have made with regards to the 7th edition of the Outlook …. since April.

Overview of APERC Events Since April 2017 May APERC Annual Conference and Joint Symposium with IEEJ (Tokyo) June 3rd Oil & Gas Security Network (OGSN) Forum (Irkutsk) August Peer Review on Low Carbon Energy Policies (PRLCE) in Papua New Guinea (Port Moresby) September 1st Low-Carbon Model Town Symposium (Jakarta) October LNG Producer-Consumer Conference, co-hosted with METI with more than 1,200 participants (Tokyo) It has been a busy summer at APERC. We have hosted five key meetings both in Tokyo and outside of Japan. In mid-May we held our annual conference and joint symposium with IEEJ. We also held the 3rd OGSN forum in Russia, the Peer Review on Low Carbon Energy Policies in Papua New Guinea, and the st low-Carbon model Town Symposium in Indonesia. Most recently, just last week, we co-hosted the LNG Producer-Consumer conference with METI here in Tokyo.

Overview of APERC Events Since April 2017 This event included more than 1,200 participants including 11 energy ministers and two vice minsters. This photo is of the speakers from this conference, including these ministers and vice ministers. (Minister Seko from METI here in Japan)

Overview of APERC Publications Since April 2017 Natural Gas Utilization in APEC: Is the Golden Age of Gas Still Probable? May APEC Energy Overview 2016 Superiority of LPG - A Disaster-Resistant Energy Source (APEC Oil and Gas Security Studies Series 9) Geopolitical Implication of Iran Nuclear Agreement Over the same period of time, APERC has released 8 notable publications that are available on the APERC website. A number have focused on natural gas utilization and security topics – including: -----a publication on natural gas utilization in APEC and a publication on the geopolitical implications -----publications in the APEC Oil and Gas Security Studies Series -----the APEC Energy Overview 2016 report

Overview of APERC Publications Since April 2017 Publications (continued…) June Impact of Low Oil Price on Energy Security (APEC Oil and Gas Security Studies Series 10) Natural Gas Security in APEC (APEC Oil and Gas Security Studies 11) APEC Energy Efficiency Policy Workshop Summary Report: Policy and Program Evaluation II August Nuclear Power Generation in Asia-Pacific … as well as -----a summary report from the APEC energy efficiency policy workshop and ----- in August, a publication on nuclear power generation in Asia-Pacific

1. Overview of the 7th Outlook Modelling Approach & Timeline Along with all of this work, we have continued in the development of the models and analysis for the 7th edition of the APEC Energy Demand and Supply Outlook.

7th Edition integrates renewables, enhances supply Extended the outlook period to 2050 Integrated renewable energy analysis with the demand and electricity models Added a supply model and an integrating module Increased collaboration with economies, for instance modelling assumptions review process 2 alternative scenarios APEC Target: integrates APEC energy efficiency and renewables aspirational goals 2-Degree Scenario (2DS): investigates technology transition pathways to reduce carbon dioxide emissions Compared with the 6th edition, this 7th edition has a few key differences… First --- the Outlook period has been extended from 2040 in the 6th edition to 2050 in the 7th edition Second --- as I will describe in more detail in a moment, we have added several additional capabilities to our model including integrating renewable energy more fully across the models and adding additional modules. We have also increased our direct collaboration with the economies --- including a detailed, 3 step review process. Earlier this year, we completed the first round of these reviews, which focused on our key assumptions. In November, we will begin our second round --- sending out our initial scenario results to the economies for their review.

Outlook 6th edition scenarios Outlook 7th edition scenarios 7th edition of the Outlook will produce two alternative scenarios through 2050 Outlook 6th edition scenarios (to 2040) Outlook 7th edition scenarios (to 2050) Business-as-usual (BAU) APEC TARGET 2 DEGREE Business-as-usual (BAU) IMPROVED EFFICIENCY HIGH RENEWABLES ALTERNATIVE POWER MIX Alternative scenarios The 6th outlook was published in May 2016 and went out year-by-year to 2040. The 7th Outlook will go out another decade --- to 2050 --- and we plan to include two alternative scenarios to the Business-as-Usual case ---- an APEC Goal Scenario and a 2 degree scenario. The APEC goal scenario incorporates the APEC goals on renewables and energy intensity. For the 2DS, as I will discuss here in a moment --- we will generally follow the IEA pathway for carbon emissions reductions in the energy system between now and 2050, which provides a 50% chance of limiting global temperature increases to 2 degrees Celsius. We expect to compare both of these scenarios to the trajectory implied by the current Intended Nationally Determined Contributions (INDCs).

Assumptions for the APEC Target Scenario This scenario focuses on simultaneously achieving the APEC energy intensity and renewables capacity goals. whereas 6th Edition looked at the two goals separately For the energy efficiency goal In 2007, APEC Leaders agreed to a regional aspirational goal of reducing energy intensity by at least 25 percent by 2030 (with a 2005 base year). This goal was updated in 2011 to a 45 percent reduction of regional aggregate energy intensity by 2035. Energy denominator is still under discussion – for now, we are looking at final energy demand. As for renewables in 2014, APEC Leaders endorsed a new aspirational goal to double the share of renewable energy in APEC’s overall energy mix by 2030 (over 2010 levels) and increase cooperation to achieve it. goal is applied to final energy demand and includes energy sources such as large-scale hydropower, but not traditional biomass (i.e. following the UN’s definition).

Emissions Boundary and CO2 Emissions Factors We will consider CO2 emissions from fuel combustion + industrial process emissions If possible, we will also calculate fugitive emissions and include these values in the discussion (but no figures) Agriculture: excluded although represents more than 15% of total GHG emissions for 7 economies LULUCF: excluded – large variations year on year which are either negative or positive CO2 Factors: Use global factors for coal, oil and gas instead of economy specific factors (6th edition)

Assumptions for the 2-Degree Scenario (2DS) IEA ETP sees a declining share of APEC budget within global emissions

Rough APEC 2DS sector budgets based on IEA ETP (Gt CO2) Power Other transformation Industry Transport Buildings & Others Total % of Global 2013 8.21 2.81 3.62 4.32 1.85 20.81 61% 2020 8.43 1.17 6.55 4.71 1.93 22.79 65% 2030 5.40 0.82 4.17 1.56 17.35 2040 2.07 0.40 3.24 1.27 11.30 55% 2050 0.69 0.12 3.33 2.27 0.97 7.39 50% Emission pathways are expected to be different across the sectors

Past: 6th Edition - Outlook model structure GDP MAIN ASSUMPTIONS ● Buildings final energy demand ● Industry final energy demand ● Transport final energy demand ● Renewable generation ● Installed capacity and generation ● Energy production, supply and net trade ● Energy investments Electricity model Supply assumptions Renewables Buildings Transport Industry MAIN RESULTS Inputs Model relationships Final outputs ● Population ● Fuel price assumptions ● Buildings demand data ● Industry demand data ● Transport demand data ● Renewables potential and costs ● Power generation and capacity ● Production sector data ● Energy investment data Macroeconomic Investment For the 6th edition of the Outlook, we used seven models. There was a macroeconomic model and three demand models for buildings, industry, and transport. We also had an electricity model and an investment model. Finally, we had a renewables model. In the 6th edition, the renewables model consisted of two sub-models--the 1) renewables power sub-model and the 2) biofuels sub-model. The renewables power sub-model mainly estimated generation capacity and output of hydro, wind, solar, biomass, geothermal, and ocean thermal. In the biofuels sub-model, maximum bioethanol and biodiesel demand and supply were estimated.

Present: 7th Edition – Outlook model structure, including integration module to aggregate data Here’s what the modelling system for the 7th edition looks like. The demand models are orange, the transformation models are green, and the supply model is yellow. We still have separate models for transport, industry, buildings and electricity. But renewables is now distributed among those four. Investment is now distributed among all the demand, transformation, and supply models. And Macro is now part of Key Assumptions. This time we also plan to calculate demand-side investment. New on this diagram are the Other model (mainly for agriculture), the refinery and heat models in the transformation group, a supply model, and an integration module in blue. This integration module, in particular, is a significant step forward to assist in streamlining the modelling work. It makes the updates between the models smoother and reducing the amount of time that we spend checking the outputs. The supply model will be simple this time, focusing on production and trade; the refinery and heat models will also be simplified. Although this system is more complex than the model for the 6th edition, supply and demand will still not converge on a price.

Renewables modelling updates for 7th Edition Integrate renewable energy analysis into Demand (Buildings, Industry, and Transport) and Power models Consider policy mandates, technical limits… Incorporate renewable capacity stock modelling Look at currently available waste/residue Assess direct renewable use (for heating and cooling applications) Estimate detailed renewable potential by economy and by sector Improve daily load curves analysis to quantify impacts of variable renewables in power Expand list of renewable technologies in Demand and Power models For the 7th edition, we plan to integrate the renewable model with the rest, as a way to simplify our structure. We will move the renewable power submodel into the electricity model and move the biofuel submodel into the transportation model. At the same time in the 7th edition are introducing a more bottom-up approach to modelling the residential, commercial, and industrial sectors. This will allow us to assess the technical and economic potential of renewable heating and cooling technologies by sector and by economy. Next, we also hope to improve our policy analysis of solar, geothermal, and biomass, looking at feed-in tariffs, renewable portfolio standards, and power purchase agreements. We also hope to improve the power model by further modelling daily output intermittency. This will be particularly helpful in modelling photovoltaics, wind, and hydro. Continuing with changes in the power sector, for the 7th edition, we plan to further disaggregate the renewable technologies in the model. Among other things, we plan to separate large and small hydro, onshore and offshore wind, and introduce concentrating solar power. Now let’s discuss the scenarios that we are constructing for the 7th Outlook.

7th edition adds low-carbon implementation chapter Part 1 – APEC demand and supply under business as usual Introduction Outlook for energy demand Outlook for energy supply Outlook for the power sector Part 2 – APEC demand and supply under alternative scenarios APEC energy goals scenario (combined intensity + doubling renewables share) 2-degree scenario (low carbon transition/advanced technologies) Energy investment Energy security Raising APEC climate ambitions (focus on implementation) Here’s what the table of contents looks like for the 7th edition. Part 1 is the same as last time, but Part 2 is somewhat different. In Part two we will have a chapter on energy investment and two new scenarios. The fourth chapter in Part 2 will be about trade and its potential to enhance energy security. This is in keeping with APEC’s original charter as forum to enhance economic integration through trade and traditional concern about energy security among economies with few energy resources. The last chapter will focus on efforts to implement APEC’s CO2 reduction goals. One thing we heard in the road shows was the economies wanted more attention on what to do in the next 5 to 10 years. And this publication will be released at the time economies are reconsidering their INDCs.

Models are being run & results will be reviewed this autumn Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 2019 Economy review of assumptions ü Model development Demand model runs Power & supply model runs Economy reviews of model results Model reruns to respond to comments Outlines, drafting of chapters Editing, printing Publication April Finally, let me turn to the schedule. We began working on the 7th edition shortly after we completed the 6th edition last year, developing models and collecting data. Early this year we began writing down our assumptions for the 7th edition scenarios. We sent out the assumptions to all the economies for review and, as I said, got comments from 16. Our next task is to run our demand models and then the power and supply models. We plan to run the business as usual and APEC goal scenarios at the same time, and then the 2-degree scenarios. So, this isn’t quite as linear as a it looks. After that, the economies will review the results, starting in October. Next we’ll rerun the models to respond to comments, and spend the spring writing up the results. After the conference next year, we’ll have the document edited, and starting in September 2018, send out the text for comment by economies and experts comments. Data updates and more model runs will follow, with publication in April 2019.

Thank you for your kind attention All three of the activities I’ve talked about today—research and forecasting, the overview, and measuring energy intensity--require timely and accurate data. That’s the foundation of analytical work. Both the forecast and the data trends for energy intensity show APEC failing to meet its 2035 goal by a few years. To achieve the goal, on the analysis side, we can suggest alternative pathways. On the data side, your data can allow us to disaggregate the APEC numbers by economy and by sector--so that policy makers know where to focus. As the demand for data grows, the challenge for data collectors will increase. I urge you to join with the analytical and policymaking community in determining how to best use your limited resources.