Oil Change International

Exposing the true costs of fossil fuels

The International Energy Agency’s New Climate Scenario: At Last, a Step Towards Paris

Yann Arthus-Bertrand / Spectral Q

Yann Arthus-Bertrand / Spectral Q

Wondering what the future of energy will look like? Odds are that no matter who you ask, you’ll eventually get handed a copy of a report from the International Energy Agency (IEA). The IEA’s annual World Energy Outlook (WEO) report has become the ‘go to’ outlook for the global supply and demand for all types of energy, used by governments, investors and companies to plan for the future.

Every year the WEO describes three possible futures of the world’s energy, one of which – the 450 Scenario (450S) – is supposed to show what happens if we stay within climate limits. The trouble is that following the 450S would give us only a coin’s toss chance of a safe outcome. As a result, it still has plenty of room for more fossil fuels. The UK Government has used 450S to justify oil drilling in the Arctic; the Australian Government has used it to support new coal mines; and the Canadian government to support new LNG terminals.

Today the IEA finally released an energy forecast that aims for a greater chance of avoiding danger. It is crucial now that the IEA retire its outdated 450 Scenario from the World Energy Outlook, and instead focus on how to keep warming well below 2ºC and aim for 1.5ºC.

The new report is published jointly with IEA’s clean-energy counterpart, the International Renewable Energy Agency (IRENA). The IRENA portions of the report make several powerful arguments: a rapid transition to renewables is both affordable and possible, and will create a massive increase in energy jobs. We’ll focus here though on the IEA part, and especially what it says about fossil fuels.

The IEA asks the right question: What will the future of energy look like if we actually try to achieve part of the Paris Agreement goals? In its answer, it gets one thing right: a managed decline of fossil fuels must begin now if we are to avoid severe disruption. But it also gets one thing wrong, understating the speed of the needed transition: it proposes a greater role for fossil fuels than the science allows, including coal.

Right Question: Better Odds

The IEA’s new scenario rightly aims to explore how energy would look if part of the Paris Agreement goals are met. It is designed to limit emissions such that the world would have a 2-in-3 chance of keeping global warming below 2ºC above pre-industrial levels. In principle, this is the upper end of the range that governments agreed to in Paris.

IEA’s regular 450 Scenario gives only a 50-50 chance of staying below 2ºC. This may sound like a subtle difference, but it’s an important one. When the 450 Scenario was first published in 2009, governments saw 2ºC as the target level of warming we should aim for. Since then, the science has indicated that even 2ºC of warming is dangerous: from disrupting global food production to risking the feedback loops of runaway climate change. That’s why the Paris Agreement set goals of keeping warming well below 2ºC, and aiming for 1.5ºC. Arguably given those dangers, we’d want better than 2-in-3 odds of avoiding them. But that’s the probability used by the IPCC to denote “likely”, so that’s what we have.

Civil society groups are calling for the IEA to drop the 450 Scenario: it’s obsolete and unhelpful. Let’s start with the next World Energy Outlook in November. This is important because unlike this new report, the WEO includes detailed data tables that are regularly used to make energy decisions.

One Right Answer: Act Now to Wind Down Fossil Fuels

In its analysis, the IEA observes that the extent to which fossil fuel assets will be stranded crucially depends on whether the right decisions are made now. If governments and investors act now to keep the world within climate limits, the transition over the coming decades can be a smooth one. On the other hand, continued investment on a business-as-usual pathway would require more abrupt action at a later date, disrupting economies and costing jobs.

We agree. We made this argument last year in our report, The Sky’s Limit: Why the Paris Climate Goals Require a Managed Decline of Fossil Fuel Production. We pointed out that extra investment now in fossil fuels can only have one of two results: to cause assets to be stranded, or to drive the world beyond tolerable climate limits.

The IEA describes a “disjointed transition” case, where the energy industry continues for ten years in line with the IEA’s New Policies Scenario – meeting governments’ existing emissions commitments but no more – and only after 2025 commits to the 2-in-3 chance of staying below 2ºC. The result, the IEA estimates, would be $1 trillion of stranded oil investments, and $300 billion of natural gas.

In short, investments must shift to clean energy now; a ‘wait-and-see’ approach would be very damaging.

One Wrong Answer: Too Much Fossil Fuels

One striking conclusion in the IEA’s scenario is a much higher fossil fuel share than would otherwise be the case. Oil is down 60% from current levels by 2050, and gas just 16%. Even more strikingly, the IEA still sees significant coal use in 2050, albeit reduced to a third of today’s levels. There really is no justification for assuming the world will still be burning coal in more than a generation’s time.

What the IEA gets most wrong is to call for major ongoing investment in fossil fuel extraction. We found in the Sky’s Limit that already-developed fields and mines contain enough oil, gas and coal to take the world beyond 2ºC. In fact, the IEA projects $200 billion a year of investment in fossil fuel extraction as late as 2050 – investment that is sure to either be wasted or to drive devastating climate change.

We will dig further into the IEA’s analysis over the coming days.

The immediate need is for the IEA to stop using its 450 Scenario in the World Energy Outlook. The IEA is right to examine how energy could look while meeting the Paris goals, and right to call for action to begin now. But the assumptions in its model should be closely scrutinised to ensure the IEA doesn’t understate what is needed.

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