Publications

Energy Policy Scenarios to 2050

4.5. Regional Perspectives

4.5.1. Africa

Africa is the second largest continent of the world with an area of 30 million km2, representing 15% of the world's area and having a population of 865 million representing 13.5% of the world's population. Despite Africa being a rich continent in terms of abundant natural resources, diversified geographical regions, and different climate conditions, it is the least developed area in the world. The most important challenges are inadequate health care, education, a lack of clean water, energy poverty, very limited investments, weak infrastructure, lack of institutional capabilities and capacity-building, and inefficient utilities.

Increases in energy prices and rapid changes in energy markets represent a burden not only on the economies of the most African countries on both macro- and micro-levels, but also on the daily life of the inhabitants, particularly those living in scattered remote areas. Securing affordable modern energy supplies and services is a necessity for sustainable development. Governments are required to strengthen cooperation and integration among its sub-regions as well as cooperation between the countries of the continent and the rest of the world. The role of private sector investment in accelerating development is vital, along with international cooperation.

Scenarios without high degrees of cooperation or integration are not favourable for Africa. A situation without government involvement means that all 3 A's will not be achieved. With government engagement alone, Accessibility will be sustained, Availability maintained, and Acceptability will decline.

High degrees of cooperation and integration, together with a healthy degree of engagement by governments (see Scenario 3: Lion) - when mitigated by appropriate policies - are constructive for Africa to 2035, as Accessibility and Availability will improve and Acceptability is kept from becoming worse.
High degrees of cooperation and integration (regionally and internationally) alone are applicable for Africa for the period 2035-2050, and even before then for those countries with strong private sector participation. Achieving Acceptability and Availability, as well as maintaining Accessibility, is subject to rationalising governmental engagement and balancing international cooperation for all parties (shared benefits). Due to the effect of large, fast emerging economies on the global energy market, the perspective for this scenario from 2035-2050 could be revised and adjusted at intervals of time (e.g., every 5 years) to cope with any rapid changes of the market.

Maximising the use of natural gas, associated gases, and promoting LPG, are essential for securing access to modern energy services, particularly in rural areas, as well as creating new job opportunities at local village levels. Promoting the use of nuclear power is considered one of the main solutions for the long-term energy sustainability of Africa.

4.5.2. Asia

The population of Asia continues to grow at the annual average rate of about 0.8% over the period to 2050. Though China's population growth rate decreases towards 2050, the average growth of India is assumed to continue at about 1.1%. As a result, the population of Asia will increase from 3.9 billion in 2005 to more than 5 billion in 2050.

Due to market-oriented economic reforms and progress in information technology, the world economy has become globalised at a rapid pace and has achieved an annual growth rate of 2.7% over the past 20 years. In particular, Asian countries have attained high economic growth (4.0%), far exceeding that of the world economy thanks to the virtuous cycle of investment and export brought about by foreign direct investment, as well as active technology imports and a plentiful supply of a high quality workforce. Thus, Asian countries have been the driving force for the world's economy, and Asia has an extremely large impact on the world's energy demand. The Asian share of the world's primary energy consumption is currently around 40%, while primary energy production is around 45%, positioning Asia (including Middle East) as an energy supplier with large supply reserves for the future.

With the support of its surging domestic demand, China's economy will sustain high rates of growth, and India has recently been rivaling China. By 2035, the economic growth rate of India might be higher than that of China and over the period to 2050 India may attain 7-8%/year sustained GDP annual growth (primary energy growth rate of India might be 5-6%/year). Thus, every aspect of this region (e.g., GDP growth rate, energy demand and supply, etc.) will for the most part depend on these two countries.

Asia's primary energy demand will grow at an average of 2-3%/year to 2050. They require some 15 billion tons of oil equivalent or 625 EJ/year, about 3 times more than the current level of about 200 EJ/year. About 60% of the increase is for China and India. Fossil fuels account for almost 70% of the increase in consumption, therefore are expected to be an important energy resource until 2050. Coal is assumed to have the lion's share of the increase, followed by oil and natural gas.

Developing Asian economies are becoming motorised societies as their standards of living improve and this trend will continue. This in turn brings an increase in the demand for transportation fuel, oil, and to the extent that oil is scarce, coal conversion to liquid.

Production of oil in Asia (i.e., Middle East, China, etc.) decelerates in the coming decades; however, total global production would meet increasing demands if combined with innovative, unconventional sources, thus avoiding an interruption of supplies, such as examined in Section 4.2.3. Neither China nor India produces enough oil or natural gas to meet its needs today and the shortfall is expected to grow .

Natural gas is assumed to decline faster and shortages are made up to some extent with unconventional gas sources (tight gas sands, fractured shale, coal-bed methane, and methane hydrates).

Coal resources are much more abundant. As oil and gas supplies tighten, proven technologies for production of synthetic fuels through gasification/liquefaction of coal will be put into place as necessary.

Electricity supply expands along with the standard of living, boosted by its economic growth. Over the period to 2050, electricity consumption increases five-fold as a result of growing demand. In oil-equivalent terms, electricity generated by nuclear power is assumed to rise from 160 mtoe (million tons oil equivalent) in 2005 to the level of 1,200-1,500 mtoe in 2050, for an average annual growth rate of about 5%. Nuclear power plays a vital role in Asia, especially in China and India, which is predicted to account for about 70% of the nuclear power increase in Asia.

There are high hopes for the diffusion of renewable energy sources with little environmental burden, such as hydropower, geothermal energy, and new renewable energy (solar, wind, and biomass). Their share in primary energy production is anticipated to increase from 2% in 2005 to around 10% in 2050. However, collectively, they are not going to rank on a par with fossil resources as pillars of the base energy supply, due to their continuing high supply cost. New renewable sources of energy have to be encouraged, but developing countries cannot afford to be obsessed with it.

4.5.3. Europe

The region realises that for a long time its culture and politics have inclined toward international orientation and cooperation. Looking from a world perspective, energy consumption per capita in the region is at a medium high level. An emissions trading regime has come into force in the region, and finding the right balance between regulation and market now matters. Most important to Europe is accommodating the world at large, especially in China and India. This means that Europe (possibly with North America) believes it must significantly reduce carbon emissions.

A number of general reflections can be made about the scenarios:

A decreasing trend in energy intensity is in all scenarios. Energy supply, however, is increasing in three of the four scenarios and is only stabilised in the Lion scenario. Here, we witness the beginning of a decline in the EU, which makes it the only storyline consistent with the direction of ambitious decisions taken by the EU heads of state in the spring of 2007. We should keep in mind, however, that this development is largely due to the high levels of economic growth in the period concerned. Russia sees improved levels of energy intensity of around 3% in all scenarios from 2020 onward, but the rate of decrease slows because of the lower economic growth expectation in all scenarios.

It is to be noted that, for the EU, these levels are the highest in the high cooperation and integration scenarios over the whole period, where they remain more or less around the 50% level of 2005, and attain 60% in 2050 in the Lion scenario. This might seem illogical, as the larger drive for bilateralism in the low cooperation and integration scenarios (Leopard and Elephant) should produce better results. For the EU, however, the high cooperation and integration worlds are those where the discount rates for nuclear and renewables are the lowest because of a more certain and predictable world, which would improve the competitiveness of these energy forms and the self-sufficiency of the EU. Differences in oil, gas, and coal prices between the high and low cooperation scenarios are too low to significantly alter improvement in competitiveness of nuclear and renewables in the high cooperation scenarios. Bilateralism seems to tend to secure the supply from abroad rather than 'forcing' the development of insufficiently competitive endogenous resources. As for Russia's self-sufficiency, that is at 100% in all cases.

Coal in the European energy mix will be mostly for electricity generation. In that respect, it has to compete with other primary sources of electricity, mostly nuclear and renewables (including biomass). Unless supported by dedicated policies, coal use in electricity generation is determined by the costs of the various competing technologies, the prices of inputs, and the discount rate applied in the economic calculation. Socio-political constraints on nuclear power and renewable energy development might be larger than assumed.

In all four scenarios, oil loses its share of the energy supply, even with relatively similar shares in all four. The decline is highly dependent on the transportation sectors.

Gas is the stable story, maintaining its overall share in 2050 in all scenarios. Remarkable as well is that Russia is and will be a largely gas-based economy. It is yet unclear, however, what this means for exports. Although the model indicates that for all scenarios the share of gas in 2050 is close to its share in 2005, it increases greatly between 2005 and 2020 and declines afterward. The reason is linked to the competitiveness of gas in some specific end-uses and sectors, which is somewhat independent of the scenarios. Thus, gas is very competitive everywhere for peak and mid-load electricity generation, in particular in tandem with renewables, leading to a stable share of gas in electricity generation. In addition, gas is very competitive for thermal uses in residential, tertiary, and industry sectors as well, leading also to stable and high shares in these markets. The reason why the gas market share increases strongly up to 2020 is because of further rapid development of gas distribution infrastructures in those European countries not so well equipped today. It decreases afterward because of less rapid development (if not stagnation) of stationary thermal end-uses as compared with electricity uses and motor fuel. In general terms, it is questionable whether Russian gas exports in the period 2035 to 2050 can service Europe when these would total some 2.5 times today's levels, while at the same time some 200 billion m3/year of exports to Asia are assumed.

Nuclear power is revitalising in the EU in all scenarios, passing coal in almost all scenarios. This is not happening equally in Russia where the performance of coal is stronger. It could be worthwhile to explore further what this nuclear power revival in the EU would mean in terms of building programmes and fuel-cycle facilities.

The most optimistic scenario for renewable energy (Lion) gives the EU a 'modest' 24% share, which is much lower than targets of 40-50% mentioned by some EU governments. It should be noted that the perspectives for hydropower are rather similar from one scenario to another. This means that almost all the increase in renewable energy comes from biomass, solar, and wind (geothermal energy is included with hydro, but at a very minor level). The only possibility to increase this share of renewable energy further would be to decrease dramatically the demand for electricity and thermal uses, while maintaining the output of wind, solar, and biomass at the same absolute levels.

4.5.4. Latin America and the Caribbean

The region has a strong interest in the use of biofuels and hydroelectricity. For example, Brazil is responsible for the most extensive global programme introducing biofuels into its energy matrix (by the ethanol programme). In this context, renewable biomass is favored over that derived from the extraction of native woods. Not only is the Brazilian programme responsible for the development of the domestic market and technologies, resulting in a high degree of efficiency along the entire ethanol production chain, but it also enabled the country to develop the sector that supplies foreign demand on a competitive basis. The region's dedication to bio-energy was recently underlined with the development of biodiesel as an alternative fuel, principally for transport.

However, the region still demands large quantities of firewood for residential and industrial purposes. Besides being an inefficient and polluting energy source, the origin of this resource is mostly native forests, not always close to the point of consumption - implying high costs for the transportation of firewood or charcoal. The most serious aspect related to the use of firewood, including charcoal, is the accelerated deforestation of certain regions with enormous damage to the environment. In the context of the evaluation of the 3 A's, this has a negative impact on Acceptability to the extent that the unconditional use of this source of energy is due to poor Accessibility and limited local Availability of modern sources of energy. In terms of primary sources for electricity generation, the region is undergoing a process of diversification in its energy mix. Coal will likely become an alternative as technological advances mitigate the local air-pollution effects of generating electricity from coal.

Other sources of energy could become more expensive (principally natural gas) with highly volatile international prices and heavy demand competition from developed countries. Furthermore, capital expenditures involved in harnessing some renewable energy sources and nuclear energy are still very high and their payback period very long (primarily in the case of nuclear power).

With regard to transportation, there is a need for more hybrid vehicles (conventional and the plug-in type), as well as pure electrically driven cars and buses. This would diminish the region's dependence on oil products, and improve the environment from the reduction in greenhouse gas and other emissions. The region faces enormous expansion and technological progress possibilities in terms of transport and related subjects. Its telecommunications sector offers an increasingly large range of products and services that reduce the need for moving people and printed information from one place to another, and consequently, should entail a significant reduction of energy consumption.

Investments in biofuels exports expand and as the interest in this product grows in other countries. A major effort on the part of the region is needed to leverage its competitive advantages, both existing and potential, in biofuel production. From the standpoint of imports, advances in technology for clean power generation from coal allow the region to import this product because a significant part of its own reserves are of comparatively low quality.

The region has to make substantial investments if it is to successfully increase its energy independence and maximise local potential (natural gas in Bolivia and Trinidad and Tobago, oil and natural gas in Venezuela, hydroelectric power in Brazil and Colombia) to the benefit of the region as a whole. The socio-economic question is also fundamental, principally with respect to economic growth and income distribution because this provides the population with access to products of a higher quality and more advanced technology, thus making for the more efficient use of energy.

Finally, by 2050, fossil fuels will still play a major role in the energy supply structure. In most scenarios, their share is expected to be reduced to less than 50%, but the absolute value of their consumption is probably a lot higher than at present. By 2050, scarcity of conventional oil and gas is believed to be one of the energy market's main features. There may be a need to avoid or to sequestrate greenhouse gas emissions. Practically, little more hydro development is possible, although equipment manufacturers are still in business due to old power plant refurbishment. Biomass production for energy purposes is likely to meet competition from edible biomass needs, at least in some areas. So, even though the demographic pressure is very much reduced, the energy balance requires very significant improvements of end-use efficiency and of primary energy transformations.

4.5.5. North America

The issues of prime importance for North America are grouped under six themes: energy supply; end-use; environmental impact; technology; global market reform and financing; and policy and coordination.

Energy Supply
In North America, the need for energy supply continues to expand. It is projected that demand growth in North America will be more than 30% by 2030 and could be as much as 50-70% by 2050. To meet this growth, North America will need to continue increasing its supply from all traditional sources, including oil, natural gas, coal, nuclear power, hydropower, and various renewable sources. In addition, strong support is needed for new types of energy supply, including non-conventional sources, such as oil sands, oil shale, coal-bed methane, tight gas, and methane hydrates. There is also a need for additional supply from biofuels.

Supply of oil from conventional sources in all three countries is projected to decline. Canada's overall production of oil, however, is projected to increase as the oil sands are further developed. For Mexico, undeveloped oil reserves are substantial, especially in the sedimentary basin on the east side of the Sierra Madre Oriental and in the Gulf of Mexico. However, investment in exploration and development of these reserves has lagged, as profits from Pemex finance other government priorities. This raises the question of needed fiscal reform so that oil production can increase. Over the next half-century, it is projected that North America will continue as a net importer of energy, especially oil. North America may move toward regional self-sufficiency, if there is a deterioration of global trade relations, especially with oil-exporting nations. Furthermore, self-sufficiency would be in a North America regional context.
It is expected that energy supply from fossil fuels in North America will change substantially over the next half-century. There will be increasing reliance on coal and associated facilities for producing hydrocarbon derivatives (gaseous and liquid fuels).

End-Use
North America's use of energy is high, compared with other regions of the world. Substantial opportunities exist for using energy more efficiently (see Appendix B, sub-sections 10.2.1 and 10.2.3). The potential for reducing energy use and implementing energy efficiency and conservation practices is substantial and deserves a high priority. The greatest potential is in transport systems, especially land transport, an area in which demand is growing most rapidly, in both absolute and percentage terms. This problem is made more acute because of the dependence on petroleum derivatives. In the United States and Canada, roughly 80% of people live in urban areas. Therefore, substantial opportunities exist to make cities and their residents more energy efficient through investments in comprehensive, integrated, public transportation systems. There are also opportunities for urban planning that emphasises densification and the development of business and residential clusters, thereby reducing commute times and energy use.

Environmental Impact
Climate change is a major environmental concern. In North America, as elsewhere, public awareness of the seriousness of climate change and the need for action is rapidly growing. Systems and technologies which help reduce the dependence on, or emissions from, continued production and use of fossil fuels are being seriously considered, with nuclear power, hydropower, and various renewable sources including biofuels playing a bigger role in the energy mix. Additionally, there are efforts to develop more fuel-efficient vehicles, plug-in hybrids, and hydrogen-powered vehicles. Carbon capture and storage is a promising technology to mitigate greenhouse gas emissions, the main focus being storage in geologic formations. Other options include the increased use of agricultural and forest sinks.

Technology
In meeting the challenges of the 3 A's, the process of selecting and implementing emerging technologies needs to improve. In particular, selection should be based on a comprehensive appreciation of the long-term consequences of such developments and with full participation of all stakeholders - government, industry, research institutions, and universities. It is also important that commitments be made for promising technologies and that the process of bringing such technologies into operation be accelerated.

Global Market Reform and Financing
Free trade for North America is an important consideration for all three countries, especially energy. Canada and Mexico rank number 1 and 2, respectively, in exporting oil to the United States. There is also extensive trade in natural gas, uranium, coal, and electricity. Despite the abundance of indigenous energy resources in North America, there will be major energy trading outside North America. For example, the North America region will continue to be a major net importer of oil and natural gas and a significant net exporter of coal and uranium. In North America, a variety of financing instruments is available for energy development and the risks are manageable, but some utility assets are discounted due to low returns (particularly in transmission) and it is difficult to attract investment to new projects. While the United States and Canada are generally considered attractive locations for such investment, Mexico is in a different situation which is related to the ownership and control of resources. As a consequence, Pemex's financial resources are constrained for exploration and development activities, resulting in the decline of proven oil and gas reserves. There is a need for national fiscal reform to overcome this financing challenge to accelerate oil and gas supply.

Policy and Coordination
Regional coordination is important for all three countries. The three countries entered into a North America Free Trade Agreement (NAFTA) in 1994 that provided opportunities for increased trade and the progressive removal of trade barriers. In 2005, the three countries entered into a subsequent agreement, referred to as the Security and Prosperity Partnership (SPP). Both agreements provided opportunities for increased trade in energy commodities, including progressive interlinking of the energy systems.