1. © Copyright Giacomo Luciani The Politics and Economics of International Energy Lecture 1 Introduction – Long-Term Energy Scenarios – Dimensions of the Energy Issue in International Relations Prof. Giacomo Luciani

2. © Copyright Giacomo Luciani Contact details  Giacomo.luciani@graduateinstitute.ch Giacomo.luciani@graduateinstitute.ch  Office telephone: +41 22 7162730  Office hours: By appointment c/o Gulf Research Center Foundation 49, Avenue Blanc, 1202 Genève

3. © Copyright Giacomo Luciani Readings  Too much to read…  You should: Learn to read selectively Make sure that you can retrieve, not necessarily recall, relevant information Separate the gold from the sand

4. © Copyright Giacomo Luciani Readings availability  CD-Rom containing a large part of the readings and other important documentation.  The contents of the CD-Rom will also be available on the Intranet and a copy of the CD will be deposited in the Library. Readings MUST be completed IN ADVANCE of each class.  However, you are not expected to read everything: you should use your judgment in selecting what is truly important.  Readings that are available only on paper are highlighted in yellow.  Background reading: Daniel Yergin, “The Prize: The Epic Quest for Oil, Money, and Power”  You are expected to read this book in parallel with class proceeding although it is not listed as reading for any class. It is fun to read anyhow.

5. © Copyright Giacomo Luciani Requirements  A mid term and a final  Short (max 700 words) professional memo on one out of three or four topics proposed  You will be able to use all course material and sources  Topics will be drawn from current developments

6. © Copyright Giacomo Luciani Global Energy Trends

7. © Copyright Giacomo Luciani The Global Crisis  We have witnessed an earthquake of 9+ magnitude (Richter scale – 1 every 20 years) in the global political economy.  Earthquakes are caused by movement in the tectonic plates: over time, these movements accumulate unresolved stress – the quake releases the stress.  Unresolved stress = unadjusted disequilibria

8. © Copyright Giacomo Luciani Which tectonic plates  The recent earthquake is the result of the clash of several tectonic plates Finance Energy Globalization and division of labor Military power Global governance  The epicenter has been in the US

9. © Copyright Giacomo Luciani Finance stress lines in the US  Excessive indebtedness of families  Large and rapidly growing government deficit  Large and growing trade deficit  CURRENT TRENDS ARE NOT SUSTAINABLE

10. © Copyright Giacomo Luciani Energy stress lines  Global warming  Alienation of companies from resources and vice-versa  Huge gaps in energy consumption standards  CURRENT TRENDS ARE NOT SUSTAINABLE

11. © Copyright Giacomo Luciani

15. A word about scenarios 1  Global energy scenarios are complex– only few institutions can afford to produce them  The most widely quoted are IEA’s and EIA’s; also to be considered: OPEC (for oil), EU Commission, ExxonMobil, Shell; other institutions produce occasional scenarios  IEA: World Energy Outlook (WEO) published in November each year  EIA: International Energy Outlook (IEO) published in June each year

16. © Copyright Giacomo Luciani A word about scenarios 2  Scenarios are not meant to be realistic images of the future  They extrapolate trends under certain assumptions  They allow exploring the sustainability or coherence of policies  They generally contain one or more “messages”  They reflect the politics of the institution producing them

17. © Copyright Giacomo Luciani Determinants of energy demand

18. © Copyright Giacomo Luciani Diminishing energy intensity

19. © Copyright Giacomo Luciani Limited catch-up

20. © Copyright Giacomo Luciani Growing global energy demand

21. © OECD/IEA - 2008 0 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 18 000 198019902000201020202030 Mtoe Other renewables Hydro Nuclear Biomass Gas Coal Oil World energy demand expands by 45% between now and 2030 – an average rate of increase of 1.6% per year – with coal accounting for more than a third of the overall rise World primary energy demand in the Reference Scenario: this is unsustainable!

22. © OECD/IEA - 2007 Reference Scenario: The Emerging Giants of World Energy China & India will contribute more than 40% of the increase in global energy demand to 2030 on current trends 0% 20% 40% 60% 80% 100% Total energy CoalOilNuclearHydroPower sector investments Rest of the world India China Increase in Primary Energy Demand & Investment Between 2005 & 2030 as Share of World Total

23. © OECD/IEA - 2008 Energy-related CO 2 emissions in the Reference Scenario 97% of the projected increase in emissions between now & 2030 comes from non-OECD countries – three-quarters from China, India & the Middle East alone 0 5 10 15 20 25 30 35 40 45 198019902000201020202030 Gigatonnes International marine bunkers and aviation Non-OECD - gas Non-OECD - oil Non-OECD - coal OECD - gas OECD - oil OECD - coal

24. © OECD/IEA - 2007 Energy-Related CO 2 Emissions by Region, 1900-2005 Over the last century, China has contributed only 8% of global emissions & India 2% 0 2 000 4 000 6 000 8 000 10 000 19001915193019451960197519902005 million tonnes Rest of the world 33% India 2% China 8% Japan 4% European Union 23% United States 30% Cumulative emissions

25. © OECD/IEA - 2007 Reference Scenario: World’s Top Five CO 2 Emitters 200520152030 GtrankGtrankGtrank US5.816.426.92 China5.128.6111.41 Russia1.531.842.04 Japan1.241.351.25 India1.151.833.33 China overtook the US to become the largest emitter in 2007, while India becomes the third-largest by 2015

26. © OECD/IEA - 2008 World primary energy demand in the Reference Scenario 0 1 000 2 000 3 000 4 000 5 000 6 000 198019902000201020202030 Mtoe Oil Coal Gas Biomass Nuclear Hydro Other renewables World energy demand expands by 45% between 2006 and 2030 – an average rate of increase of 1.6% per year – with coal accounting for more than a third of the overall rise

27. © OECD/IEA - 2008 Cumulative energy-supply investment in the Reference Scenario, 2007-2030 Investment of $26 trillion, or over $1 trillion/year, is needed, but the credit squeeze could delay spending, potentially setting up a supply-crunch once the economy recovers Power generation 50% Transmission & distribution 50% Mining 91% Shipping & ports 9% Exploration and development 80% Refining 16% Shipping 4% Exploration & development 61% LNG chain 8% Transmission & distribution 31% Power 52% $13.6 trillion Oil 24% $6.3 trillion Gas 21% $5.5 trillion Coal 3% $0.7 trillion Biofuels <1% $0.2 trillion

28. © OECD/IEA - 2008 World energy-related CO 2 emissions in 2030 by scenario OECD countries alone cannot put the world onto a 450-ppm trajectory, even if they were to reduce their emissions to zero Non-OECD World OECD 0 5 10 15 20 25 30 35 40 Reference Scenario550 Policy Scenario450 Policy Scenario Gigatonnes

29. © OECD/IEA - 2008 Share of renewables in electricity generation in the Reference Scenario 0%5%10%15%20%25%30% 2030 2015 2006 2030 2015 2006 2030 2015 2006 Non-OECD OECD World Hydro Other (wind, solar, etc) Soon after 2010, renewables become the 2 nd -largest source of electricity behind coal, thanks to government support, prospects for higher fossil-fuel prices & declining investment costs

30. © OECD/IEA - 2008 Total oil production in 2030 by scenario Curbing CO 2 emissions would improve energy security by cutting demand for fossil fuels, but even in the 450 Policy Scenario, OPEC production increases by 12 mb/d from now to 2030 0 20 40 60 80 100 120 2007Reference Scenario 2030 550 Policy Scenario 2030 450 Policy Scenario 2030 Non-OPEC OPEC 9 mb/d 16 mb/d mb/d

31. © OECD/IEA - 2008 Reductions in energy-related CO 2 emissions in the climate-policy scenarios While technological progress is needed to achieve some emissions reductions, efficiency gains and deployment of existing low-carbon energy accounts for most of the savings 20 25 30 35 40 45 200520102015202020252030 Gigatonnes Reference Scenario550 Policy Scenario450 Policy Scenario CCS Renewables & biofuels Nuclear Energy efficiency 550 Policy Scenario 450 Policy Scenario 54% 23% 14% 9%

32. © OECD/IEA - 2008 Total power generation capacity today and in 2030 by scenario In the 450 Policy Scenario, the power sector undergoes a dramatic change – with CCS, renewables and nuclear each playing a crucial role 0 1 0002 0003 000 Other renewables Wind Hydro Nuclear Coal and gas with CCS Gas Coal GW 1.2 x today 1.5 x today 13.5 x today 2.1 x today 1.8 x today 12.5 x today 15% of today’s coal & gas capacity Today Reference Scenario 2030 450 Policy Scenario 2030

33. © OECD/IEA - 2007 Average Annual Power Generation Capacity Additions in the 450 Stabilisation Case, 2013-2030 A large amount of capacity would need to be retired early, entailing substantial costs 22 CCS coal-fired plants (800 MW) 20 CCS gas-fired plants (500 MW) 30 nuclear reactors (1000 MW) 2 Three Gorges Dams 400 CHP plants (40 MW) 17 000 turbines (3 MW) 0 10 20 30 40 50 60 Other Renewables Wind Biomass and waste Hydropower Nuclear Gas CCS Coal CCS GW

34. © OECD/IEA - 2008 Key results of the post-2012 climate-policy analysis 550 Policy Scenario Corresponds to a c.3  C global temperature rise Energy demand continues to expand, but fuel mix is markedly different CO 2 price in OECD countries reaches $90/tonne in 2030 Additional investment equal to 0.25% of GDP 450 Policy Scenario Corresponds to a c.2  C global temperature rise Energy demand grows, but half as fast as in Reference Scenario Rapid deployment of low-carbon technologies – particularly CCS Big fall in non-OECD emissions CO 2 price in 2030 reaches $180/tonne OPEC production still 12mb/d higher in 2030 than today Additional investment equal to 0.6% of GDP

35. © OECD/IEA - 2008 Summary & conclusions Current energy trends are patently unsustainable — socially, environmentally, economically Oil will remain the leading energy source but... > The era of cheap oil is over, although price volatility will remain > Oilfield decline is the key determinant of investment needs > The oil market is undergoing major and lasting structural change, with national companies in the ascendancy To avoid "abrupt and irreversible" climate change we need a major decarbonisation of the world’s energy system > Copenhagen must deliver a credible post-2012 climate regime > Limiting temperature rise to 2  C will require significant emission reductions in all regions & technological breakthroughs > Mitigating climate change will substantially improve energy security The present economic worries do not excuse back-tracking or delays in taking action to address energy challenges

36. © OECD/IEA - 2008 National policies and measures The 550 Policy Scenario The 450 Policy Scenario Cap and trade Copenhagen: a plausible post-2012 global climate-change policy regime A combination of policy mechanisms – reflecting nations’ varied circumstances & current negotiating positions – is a realistic outcome at the Copenhagen COP at end-2009 Cap and trade Power generation Buildings Transport Industry International sectoral approaches National policies and measures International sectoral approaches OECD+ Other Major Economies Other Countries National policies and measures

37. © OECD/IEA - 2008 Change in world energy investment in the 550 Policy relative to the Reference Scenario, 2010-2030 Most of the incremental investment in the 550 Policy Scenario is in existing technologies -3 000 -2 000 -1 000 0 1 000 2 000 Power plantsPower transmission and distribution Fossil fuel supply BiofuelsEfficiency - buildings Efficiency - transport Efficiency - industry Billion dollars (2007)

38. © OECD/IEA - 2008 Additional investments in the climate-policy scenarios versus the Reference Scenario Power-sector investment in the last decade of the Outlook period in the 450 Policy Scenario is almost double that in the Reference Scenario 0 1 000 2 000 3 000 4 000 5 000 2010-20202021-20302010-20202021-2030 Power plantsEnergy efficiency Billion dollars (2007) 450 Policy Scenario (additional to 550) 550 Policy Scenario

39. © Copyright Giacomo Luciani WEO 2009 Preliminary results Given the present crisis, the IEA now forecasts that the global oil demand will only grow by 0.6% per year during the 2008-2014 period to reach 89m b/d in 2014.

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51. Other Scenarios

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63. Energy and Poverty

64. © OECD/IEA - 2007 Population without electricity, 2006 In 2030, if no major new policies are implemented, there will still be 1.4 billion people without electricity.

65. © OECD/IEA - 2007 Energy Poverty: Annual Deaths from Indoor Air Pollution The number of people using dirty traditional biomass for cooking is set to grow from 2.5 billion now to 2.7 billion in 2030 absent new policies Source: World Health Organization

66. © Copyright Giacomo Luciani