Ep28: Fatih Birol 'Setting the World's Energy Agenda'

No country or oil company will be unaffected from clean energy transitions”: Fatih Birol on the opportunities and challenges of the net-zero transition.

 

In this episode of Cleaning Up, Michael Liebreich is joined by Fatih Birol, Executive Director of the International Energy Agency.

Fatih begins by arguing that there is a “huge gap” between the pledges agreed upon during international summits, and the domestic policies of participating states. The transition to clean energy will affect oil-producing nations, so Faith goes on to argue that those states should prepare for the transition to avoid any negative impact form the global transition to renewables. Fatih and Michael discuss how to ensure the transition is fair and just and how to make leapfrogging to zero carbon solutions in the developing world possible.

 

Below is an abridged transcript of the conversation, edited for clarity.

 

 

Michael Liebreich: Fatih, welcome to Cleaning Up. I want to ask about the announcement that the International Energy Agency will be producing a 2050 net-zero scenario, which is big news. The Sustainable Development Scenario you already have is consistent with the UN Sustainable Development Goals. Is this more aggressive on the energy side?

 

Fatih Birol: The main driver for this is that several governments around the world made pledges: the European Union, the UK, China, Japan, Korea, Canada, and I expect very soon some other major emerging countries will join this club. This is very good, committing pledges is good, but the other thing is how to do it.

I see a big gap between the pledges, the energy policies that are put in place, and the incentives for those. When I look at, for example, sustainable recovery packages around the world up to now, I cannot say that I am happy with the amount of incentives that renewables, electric cars and others received from the governments. But 2021 may be a game changer, it's a pivotal year, I expect the US government will come with big stimulus packages with a huge incentive on the clean energy technologies very soon.

 

ML: The previous big piece of work was the Clean Recovery Plan, where you said we're essentially at a crossroads; we can either build back better or bounce back with fossil fuels. We're now more than eight months after that announcement. Are we building back better or bouncing back badly?

 

FB: I am afraid currently the numbers are not encouraging. I can tell you that in 2020 global emissions declined about 7%. At that time, we said: if the recovery packages do not put the clean energy at their heart, we may see a rebound of emissions. We are going to announce the exact numbers in a few months, but we are seeing a rebound of the emissions.

 

ML:  But overall, how much has been achieved? When you hear people like Greta Thunberg say, “you adults are doing nothing, you've done nothing.” Do you say, “well hang on a second, we're actually kind of winning, perhaps not fast enough, but we are winning”?

 

FB: It depends on how you define winning. If winning is to see a structural decline in the emissions, which I do want to see, then we need strong penetration of the clean energy technologies to be in line with our Paris goals. Therefore, there is a need for much more aggressive penetration of the clean energy technologies, and not only electricity generation, but in the transportation sector, industry, and others.

Electric cars are something we believe can help substantially reduce emissions. Today, about 3% of new car sales are electric cars and this should be, in the next 10 years, at least every second car sold.

Second, is the electricity side. Today, we spend about $380 billion on renewable electricity investments. This needs to be multiplied by four, to about $1.6 trillion. Just to put that in context, the entire energy sector investments last year: oil, coal, gas, in the entire energy sector, were $1.6 trillion. So, whatever we spend for the entire energy sector, we just need to spend for the clean electricity to reach our net-zero targets.

 

ML: Speaking about oil: BP stunned the world at the end of last year by coming up with its scenarios, which are now essentially flat and then declining oil demand or declining at faster rates. That's still not the accepted wisdom. BP said we may have already seen a peak in oil demand, what do you think?

 

FB: My view is that if there are no strong policies, oil demand will rebound to pre-Covid crisis level. Again, people say because teleworking has started, there are some emergency measures because of COVID, etc. These are important, but these are not game changers if we don't see a big penetration of electric cars, for example. Or if we don't find a way to address the plastics issue, the petrochemical sector is the main driver today of the global oil demand growth, we will go back there, where we were before the crisis.

 

ML: You've got the pressure for net-zero and European oil companies in particular are responding by announcing their net-zero plans. A big part of the response to that strategy is to stop upstream exploration development. If demand, as you explained, continues to grow, but supply is being constrained by those decisions, aren't we just going to see a huge oil price spike? Does that concern you?

 

FB: There may be a lot of volatility in the oil markets. Therefore, many of the oil companies in Europe and elsewhere are reviewing their business strategies. The key issue for me is, what will happen to those countries whose economies are directly linked to oil prices and oil economies, like those in the Middle East for example? I can assure you that no country or oil company will be unaffected from clean energy transitions. Therefore, they must find ways to cope with it if they want their countries to have a sustainable future.

 

ML: I am sure the UK government will be happy if India, for example, was able to make a strong statement in the purchasing of electric cars. That must be a hope for the developing world. They must avoid the period of fossil fuel electricity, and go straight to solar, wind, nuclear, geothermal, etc. Is that right?

 

FB: Exactly. This is very true. Together with solar energy there is air conditioners. In India, in many Asian countries, the number one driver of electricity demand is air conditioners, which is very normal in the United States where 90% of the households have air conditioning, in Japan 95% of the households, but in Asia it is less than 20%. So, with increasing income levels, they will buy air conditioners. But, today in India, or Indonesia, to provide the same thermal comfort an average air conditioner needs three times more electricity because of the efficiency standards.

 

ML: If we say to countries in Africa, for example, “you really should leapfrog, never go down the route of the fossil emitting energy industry, so leave your gas, coal, and oil in the ground.” These are often very poor people. How do you respond to that?

 

FB: Fairness is a key issue; justice is also a very important issue. Africa is responsible for less than 3% of the cumulative global emissions, but it is one of the regions, perhaps the region, which will be hit the most. I just talked with the Senegalese minister to push for solar, it is not necessarily or primarily for "saving the planet", but it is the cheapest source of electricity generation there.

Now, think about this: the amount of solar radiation around the world is highest in Sub-Saharan Africa, in terms of the quality of the solar. And yet, in Sub-Saharan Africa, the installed capacity of solar power plants is five gigawatts. In the UK it is three times higher. I'm sure you will agree that Sub-Saharan Africa has more sun than the UK, at least most of the time. Yet it has little installed solar power capacity. So, I believe it makes sense from an economic point of view, leaving aside the fairness issue. We are not telling Africans: you should make these investments to save the world. We say: you should make these investments to provide your people access to electricity, and second, the cheapest source of electricity generation, easier to build and easier to install.