Press Release 22 March 2007
Contact: Mathias Hocke, tel: +44 20 7734 5996
Printed in the Wall Street Journal 22nd March 2007
At the European Union’s summit earlier this month, the bloc’s leaders committed to an ambitious goal of slashing so-called greenhouse gas emissions 20% by 2020--and upping the ante to 30% if the U.S. and the developing world join in. These targets won widespread praise from the press and environmental groups, but here’s the cold, hard truth: Even if massive new investments were made starting today, these emissions wouldn’t actually start to fall until at least a decade after the 2020 deadline.
The energy industry has to invest on too long a time horizon to be able to stop on a dime and change course. For instance, most of the heavy, capital-intensive commitments for clean-energy technologies that will have an impact by 2015 have already been made. If reversing emissions is the goal, then new investments must be made now in order to effect change two decades hence.
And this gets to the heart of the problem: There is a growing shortfall in the amount of capital necessary to achieve this aim, especially for the construction of clean energy and other emissions-reducing technologies. Whether we act now or later will affect the cost and timetable of these investments. That’s especially true in the developing world, from which the lion’s share of the growth in energy demand and emissions will come.
The International Energy Agency estimates that, world-wide, $20 trillion is needed to invest in energy infrastructure alone over the next quarter-century. That’s $800 billion a year. To give you some context, the $20 trillion tab equals the size of the total U.S. Government’s budget over seven years. A whopping $10 trillion will be needed just for power generation. OECD Europe will need to invest $2.4 trillion in its Energy infrastructure through 2030.
Worryingly, only half of this $20 trillion amount has been committed. Spending on research and development for promising clean-energy technologies is running at $10 billion annually, well below R&D in sectors such as pharmaceuticals. Very little energy R&D is taking place in the developing world, where the demand for electricity and transport will rise sharply in the next two decades.
Unless investment is ramped up considerably now, global CO2 emissions growth will double by 2050 (the rate will be twice as fast in the developing world). The World Energy Council also expects CO2 emissions from the transport and electricity sectors to continue rising sharply, following the same pattern we’ve seen for the past thirty-odd years.
To reduce emissions, massive capital outlays will have to be made from now through 2040. Investment is needed so that a number of promising technologies will become widespread, such as energy-storage technologies applied to renewables, second-generation biofuels that do not compete with the food chain, third- and fourth-generation nuclear power, and carbon capture and storage.
To stimulate energy investment in the developing world, the Clean Development Mechanism, which allows industrial countries to meet their Kyoto Protocol commitments by investing in emissions-reduction projects, should be extended to include energy-efficiency schemes. The rules for this mechanism should cover any type of carbon-mitigation technologies.
To meet rising energy demand from 2030 onward while curbing emissions, especially in the developing world, the number of public-private partnerships in the energy sector must be significantly increased. The energy industry, governments and the financial community must step up their cooperation, since no single partner has the adequate resources to go it alone.
The plan for the Inga Hydropower Projects on the Congo River is a case in point. What is probably the largest power-generation project in the world, Grand Inga will have adequate capacity to supply electricity to the 500 million people in sub-Saharan Africa who are currently without it. But the plants will cost $80 billion to build. This requires multiple financial backers and close government cooperation in a truly pan-African project involving many countries including Egypt and South Africa.
The significant investments required to meet future demand for cleaner energy will inevitably lead to higher energy prices throughout the world. But higher prices will serve as a powerful motivator for greater energy efficiency by consumers.
Taking bold, immediate action would be profitable for business, government and consumers alike. The world’s financial community should sit up and take heed of this enormous and urgent opportunity.
By Gerald DoucetThe WEC Statement 2007 is available for download in PDF format:
WEC Statement 2007 | version française | versión española
The World Energy Council in partnership with Oliver Wyman (global consulting firm) has over the past year worked on its third Assessment of country energy and climate policy aiming to identify key areas for policy improvements and to understand how successful policies can be transferred from one country to another. more >