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Bridging the Gap Between Energy Producers and

ConsumersCarmen Difiglio, Ph.D.

U.S. Department of EnergyInternational Conference on Economics

Turkish Economic Association

September, 2006

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Outline of Talk Problems facing energy producers and consumers.

Oıl market factors/access to capital. CO2 emıssıon trends (ıntensıty). Role of advanced technologıes to reduce CO2 emıssıons.

Technology scenarios. IEA analysıs used to achıeve a world-wıde perspectıve.

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Problems Facing EnergyConsumers

Rising prices. Uncertain supplıes. Conflict between economic growth and environment.

Energy security. Role of government.

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Problems Facing EnergyProducers

Uncertainties:–Future markets.

–Environmental constraints.

–Government policies. Short-term vs. long-term planning horizon.

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World Primary Energy Demand(IEA WEO)

Fossil fuels account for almost 90% of the growth in energy demand between now and 2030

Oil

Natural gas

Coal

Nuclear power

Hydro power

Other renewables

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

1970 1980 1990 2000 2010 2020 2030

Mto

e

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

1970 1980 1990 2000 2010 2020 2030

Mto

e

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Increase in World Primary Energy Production by Region (IEA WEO)

Almost all the increase in production to 2030

occurs outside the OECD

3%12%

85%

0

1 000

2 000

3 000

4 000

5 000

6 000

1971-2002 2002-2030

Mto

e

OECD Transition economies Developing countries

31%

10%

59%

share of total increase (%)

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Access to OılAccess to Oıl Future oıl supplıes are ıncreasıngly not dıctated by market forces but by government polıcıes.

This partly reflects exercıse of monopoly power but also can reflect natıonal polıcıes that are not as self servıng.

Access of foreıgn capıtal can ımprove productıvıty, reduce waste and envıronmental damage assocıated wıth energy productıon.

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Access to Oil Reserves (IEA WEO)

National companies only (Saudi Arabia,

Kuwait, Mexico)35%

Limited access - National

companies 22%

Production sharing

12%

Concession21%

Iraq10%

1,032 billion barrels

Access to much of the world’s remaining oil reserves is restricted

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Undiscovered Oil & Gas Resources & Exploration Wells Drilled, 1995-2003 (IEA WEO)

27%

24%12%

9%

28%

Middle East Former Soviet Union North America

Africa, Latin America and Asia

Undiscovered Oil & Gas Resources

Europe

1.9 trillion boe

64%

7%

22%

5%2%

Number of New Wells Drilled in 1995-2003

24 500 fields

Discoveries have fallen in recent year, mainly because exploration has shifted to less prospective regions

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Environment Environment Pollution vs Climate-Changing Emissions

Reducing pollution (sulfur, NOx, VOCs, PM) has tangible benefits that are easily recognized. Local actors receive the benefits.

Reducing climate-changing emissions (CO2, methane, etc.) has less tangible benefits. Benefits accrue to non-actors in non-predictable ways.

While substantial progress has been made to produce and use energy without pollution, climate-changing emissions are much more difficult problem.

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Technology OpportunitiesTechnology Opportunitiesand Limitsand Limits

Clean energy technologies can provide more secure energy services but do not always represent a good business investment.

It is usually more profitable to produce energy than to save energy.

Without government support, there is little incentive for industry to commercialize uncompetitive technologies with the goal of making them competitive through technology learning.

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0

4 000

8 000

12 000

16 000

20 000

1970 1980 1990 2000 2010 2020 2030

Mt o

f CO

2

OECD Transition economies Developing countries

Global emissions grow 62% between 2002 & 2030, and developing countries’ emissions will overtake OECD’s in

the 2020s

World Energy-Related CO2 Emissions(IEA WEO)

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Growth in World Energy Demand and CO2 Emissions (IEA WEO)

Average carbon content of primary energy increases slightly through 2030 – in contrast to

past trends

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

1971-2002 2002-2030

aver

age

an

nual

gro

wth

rat

e

Primary energy demand CO2 Emissions

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IEA’sEnergy Technology Perspectives

2006 Publication of the International Energy Agency.

Provides status of energy technologies that can reduce provide energy service demand while reducing CO2 emissions.

Using the Energy Technology Perspectives model, provides scenarios of technology use through 2050.

Assumes upper limit of $25 USD/tonne CO2 (incremental cost to achieve emission reduction).

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Scenarios (IEA ETP) Baseline ACT Map = achieves expected success in all technology areas with government efforts and CO2 reduction incentives.

No CO2 capture and storage scenario. Low

–efficiency,–renewables, &–nuclear scenarios.

TECH = high success in all technology areas.

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Global CO2 Emissions 2003-2050 (IEA ETP)

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Contribution of Technologies to CO2 Emissions Reduction – 2050 (IEA ETP)

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Emission ReductionEmission Reductionby Technology Areaby Technology Area (IEA ETP)

Other renewables

Biomass

Fossil fuel generation efficiency

Nuclear

Coal to gas

Hydropower

CCSPower

generation

End-useefficiency

Biofuels in transport

CCS in fuel transformation

CCS in industry

Fuel mix in buildings and industry

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Emission Reduction among OECD, Emission Reduction among OECD, Transition and Developing CountriesTransition and Developing Countries (IEA (IEA ETP)

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Marginal Cost with LowMarginal Cost with LowTechnology DevelopmentTechnology Development

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Key FindingsKey FindingsEnergy Technology Perspectives

Most energy still comes from fossil fuels in 2050.

CO2 emissions can be returned towards today’s level by 2050.

Growth in oil and electricity demand can be halved.

Power generation can be substantially de-carbonised by 2050.

De-carbonising transport will take longer but must be achieved in the second half of the century.

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Policy MessagesPolicy MessagesEnergy Technology Perspectives

Improving end-use energy efficiency is top priority.

Well-focused R&D is essential. Tech R&D to deployment incentives are critical.

Stable policy environment needed that promotes low carbon technologies and also address non-economic barriers.

Collaboration among developed & less-developed countries is essential.