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Syria and Lebanon: Energy Challenges and Chances Remain High

Antonia Dimou

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Syria’s energy landscape is slowly taking form after eight years into the conflict. Despite the fact that the Islamic State (IS) terrorist organization has lost control of almost all territory that it once held, Syrian, non-Syrian actors and foreign powers are not ready to discuss creating a political deal. Instead, they continue to compete for control over energy infrastructure and trade in order to gain political leverage.

Oil middlemen facilitate fuel trade between the Syrian government and the Syrian Democratic Forces (SDF). In light of the American declared position to withdraw military forces from northeastern Syria, the SDF and local interest groups in the oil producing areas have allegedly reached an understanding with the Assad government that allows reinstitution of regime control over oil and gas fields in exchange of security guarantees and a revenue-sharing arrangement that is beneficial for both sides.

It is estimated that the American-supported SDF produces approximately 50-70 thousand barrels of oil per day. From this, 40 thousand barrels are destined for the local market, and the rest are funneled to the Syrian regime.  The lack of investment however in the rehabilitation of energy infrastructure in northeast Syria impedes the increase of oil production. The absence of American investment in the U.S-controlled areas in northeast Syria is attributed to Washington’s reluctance to actively engage in nation-building and long-term construction. This reality has prompted China to dynamically pursue its Belt and Road Initiative throughout Syria and diversify Chinese foreign asset holdings in the context of new geopolitics of global infrastructure development countering American influence at regional and international levels.  In fact, Chinese investors have returned to Syria and inspect gas installations they held before the outbreak of the Syrian civil war, while the China National Petroleum Corporation has stakes in the largest Syrian oil companies namely the Syrian Petroleum Company and Al Furat Petroleum.

In general, foreign production sharing contractors go back to Syria to inspect either oil facilities that are under the control of the SDF or gas facilities that are mostly under the control of the Syrian government. French Total and Royal Dutch Shell are two major oil production sharing agreement holders in facilities under the complete control of the American-supported SDF.

The U.S. leverage over Syria’s oil and gas fields through the American-supported SDF is important. This situation provides Washington a golden opportunity for strong bargaining power in negotiations with the Assad regime for Syria’s political future. Equally important, the energy industry—from equipment and sales to crude transportation—is heavily sanctioned by the United States and the European Union. U.S. sanctions on Syria’s energy industry predate the crisis, but their renewal has sent the signal to state and non-state actors that revenue generation from the black-market oil and gas trade will not be tolerated. European sanctions imposed in 2011 prohibit trade on equipment and technology for the oil and gas sectors including exploration and production, refining and gas liquefaction.      

In this complex setting, the Russian factor cannot be ignored. Russian companies like Gazprom contribute to the restoration of destroyed infrastructure and have upgraded the Banias refinery located in western Syria. Russian companies seem to lead investment in revitalizing Syria’s oil and gas sector. However, due to sanctions, it will be difficult for Damascus to find partners to buy its crude exports. 

Under the circumstances, it is estimated that the U.S. should implement its advanced technology to rehabilitate critical energy facilities in northeast Syria as a means to solidify control over vital infrastructure; this will grant Washington a major foothold in Syria and provide a bargaining power in future political negotiations with the Assad regime. Also, the U.S. in coordination with the EU should set up a governing body to ensure that the potential international safe zone in northern Syria does not exceed 10 km in depth. This would allow oil and gas facilities in northeast Syria to continue production without interruption and not deter investors from participating in the rehabilitation of the Syrian oil industry.

Coming to neighboring Lebanon, the Lebanese government launched the second international licensing round for geopolitically diverse blocks 1, 2, 5, 8 and 10. The country’s energy sector and regulatory framework have advanced with the adoption of the Petroleum Tax Law and the model Exploration and Production Agreement (EPA), as well as the 2017 decree that divided the Lebanese Exclusive Economic Zone (EEZ) into ten blocks.

Notably, the Lebanese regulatory framework is still underdeveloped despite the fact that the first licensing round was unexpectedly transparent. For this reason, a sovereign wealth fund law and onshore exploration law should be enacted to ensure transparency and confidence in the Lebanese petroleum investment framework.  Transparency can be built on the standards set by the Extractive Industries Transparency Initiative that is a global standard promoting accountability in managing oil and gas revenues, and reforms for greater transparency. The recently enacted Law 84 is a step towards the right direction in that it aims to enhance transparency and fight corruption in the Lebanese oil and gas sector.

Overlapping maritime claims between Israel and Lebanon over an 854-square kilometer (km) maritime boundary continue to be a major challenge due to the high risk of escalation if exploration of block 9 were to proceed in the disputed area. American mediation led by then US Deputy Assistant Secretary of State and now ambassador to Turkey David Satterfield after years of failed initiatives to help resolve the Israeli-Lebanese maritime dispute has been critical. According to leaked information, Lebanon has sought to ensure that Hezbollah’s arms are not linked to the maritime boundary demarcation negotiations and has rejected Israel’s proposal for a 6-month timeframe of talks.

Negotiations are currently stalled but it is with no doubt that they have so far been complex and difficult due to implications on the national security of both Israel and Lebanon. It is estimated that negotiations will likely start again in the coming months as Lebanon considers the process to be viable according to a statement made by the Lebanese prime minister during his August 15th official visit to Washington DC.

On another note, the newly founded East Mediterranean Gas Forum (EMGF), which aims to create a regional gas market, facilitate the use of existing ones, and construct new infrastructure is a significant development. Interestingly, the exclusion of Lebanon from EMGF has prompted the country to not seek alternative membership in any new Russian or Iranian supported like-minded energy Forum. Instead, Lebanon advocates for the speedy development of three Floating Storage and Regasification Units (FSRUs) to secure swift access to new gas supplies and at relatively low cost. 

In terms of policies to be pursued, the US should continue to act as mediator and facilitator in the discussions to demarcate the disputed maritime area between Lebanon and Israel, allowing the two neighbors to embark on trans-boundary gas sharing initiatives on exploration and production. The resolution of the maritime boundary dispute will be immensely beneficial to Lebanon and the broader region.  Also, a sovereign wealth fund law and onshore exploration law should be enacted to ensure transparency, efficient management of gas revenues, and confidence in the Lebanese petroleum investment framework so that international energy companies are attracted to the country’s oil and gas sector.  

Evidently, Syria and Lebanon are players in a high-stakes energy game unfolding in the East Mediterranean. The way that both countries address challenges and explore chances will determine their engagement or exclusion from broad energy cooperation that increasingly defines the region and the policy agendas. In this respect, time is of the essense.

Antonia Dimou is Head of the Middle East Unit at the Institute for Security and Defense Analyses, Greece; and, an Associate at the Center for Middle East Development, University of California, Los Angeles

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Is OPEC stuck in a cycle of endless cuts?

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In its latest annual World Oil Outlook (WOO) report, published last week, the Organization of the Petroleum Exporting Countries (OPEC) predicted its oil production and market share to fall in the years to come.

This view of the future says a lot about the cartel’s policies in facing the ever-growing U.S. shale which is casting a dismal shadow over the future role which OPEC members are going to be playing in the global oil market.

According to the latest WOO report, OPEC expects its production of crude oil and other liquids to decline to 32.8 million barrels per day (bpd) by 2024 from its current 35 million bpd. This means that the cartel plans to go further with its plans for cutting production even after the current pact is over in 2020.

Considering the significant growth in U.S. shale production over the past few years, and to be exact, since the OPEC decided to cut production in order to relieve the negative impact of U.S. shale’s flow on oil prices, it seems that although OPEC efforts have paid off partially but they have also supported the further expansion of shale production by giving them more market share.

How OPEC sees the future of oil market and its own condition in the future, raises the question that for how long is the group going to continue these “cuts”? And is it going to be enough to maintain the significant role which the cartel has had as an influential body in the global oil market? 

The report

Before we go through the above-mentioned questions and discuss some possible answers, let’s take a look at some of the important information presented in recent WOO.

Two major aspects of the market are import to take into consideration here, first of which is production, and the second is consumption.

In the production part, as we mentioned earlier the organization sees its own production falling about seven percent in the mid-term. While according to the data provided, the cartel expects U.S. shale output to reach 16.9 million bpd in 2024 from the current 12.0 million bpd. 

This prediction means that the Middle East-dominated group has accepted defeat against U.S. shale producers and sees no way forward except further contracting to prevent the prices from falling.

In the consumption part on the other hand, once again, OPEC sees demand for its oil diminishing in the mid-term and cites rising climate activism and growing use of alternative fuels as some of the reasons for the reduction in mid-term oil demand. The true reason, however, lies somewhere else.

The producer of one-third of the total global oil expects oil consumption to reach 103.9 million bpd in 2023, down from 104.5 million bpd in last year’s report. Longer-term, oil demand, however, is expected to rise to 110.6 million bpd by 2040, although still lower than last year’s forecast.

Further cuts

In the past few years, OPEC has been reducing its oil output under a pact with the support of Russia and some other non-OPEC nations to rebalance the oversupplied market. 

Many oil experts and analysts have been recently arguing for an extension in the cuts deal, considering the emerging signs of a slowdown in global economic growth under the shadow of the U.S.-China trade war and a subsequent slowdown in oil demand.

Back in October, OPEC Secretary-General Mohammad Barkindo had announced that deeper cuts in the organization’s oil supplies were one of the options for OPEC and its allies to consider in their upcoming gathering in December.

It should be noted that Russia and Saudi Arabia as two main poles of the OPEC and non-OPEC alliance (known as OPEC+) have slightly different views about the need for further extension of the pact. Russia sees the current range of prices at about $60 good enough while the kingdom requires higher prices to go through with its ambitious Aramco IPO.

The broken cycle

What OPEC has presented in its latest report suggests that the cartel’s policy of controlling production is having an opposite impact. The skyrocketing U.S. shale production levels indicate that OPEC cuts are positively encouraging shale producers to increase their output more and more, and that will not only halt prices from rising but will also reduce OPEC’s share of the global market day by day.

In this regard, many analysts believe that OPEC should once again take into account the warnings of the former Saudi Oil Minister Ali al-Naimi, who had previously predicted that “OPEC’s production cuts only creates more production opportunity for U.S. shale oil and consequently the organization would be caught up in an endless maze of production cuts.

Final thoughts

With OPEC’s report pointing to several production challenges from its competitors, the cartel doesn’t seem to be much concerned about the demand side. 

According to the report, world crude oil consumption will continue to grow up to 2040, so that by 2024 the demand for crude oil will increase one million barrels a day to reach 104.8 million bpd. The demand growth will then continue at a slower pace, reaching 110.6 million bpd by 2040.

OPEC’s share of the mentioned 110.6 million bpd will be 44.1 million bpd, the report says.

So, it seems that OPEC believes it should continue holding its pact with the non-OPEC allies for a few more years when the growth in global oil demand would offset the increase in U.S. shale production and once again rebalance the market. 

From our partner Tehran Times

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Energy investment in emerging economies: Transforming Southeast Asia’s power sector

Michael Waldron

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Experts discuss risks, policies and investment opportunities for renewables in Southeast Asia during an IEA roundtable at Singapore International Energy Week (Photograph: IEA)

Authors: Michael Waldron and Lucila Arboleya*

The new IEA Southeast Asia Energy Outlook 2019 (SEAO) provides a comprehensive overview of energy prospects in an increasingly influential region for global energy trends. Alongside the scenario projections and analysis, the report contains three “deep dives” – on the future of cooling, on regional electricity trade and renewables integration, and on investment – that reflect priorities for cooperation agreed between Southeast Asia energy ministers and the IEA.

Bolstering investment in more efficient and cleaner energy technologies in Southeast Asia’s power sector is a particularly urgent challenge. Policy makers in many countries of the region are stepping up their efforts to support deployment of renewables across the region, but investment has lagged well behind the levels reached in China and India. Electricity demand in Southeast Asia is rising rapidly, and many parts of the power sector are showing signs of financial strain.

Whichever pathway the region follows, it will need a sizeable increase in investment flows and a reallocation of capital, particularly under a sustainable  pathway (in the Sustainable Development Scenario) where renewables spending more than quadruples. 

What can be done to put the region on a more sustainable pathway, from both a financial and environmental perspective? This was the question that we addressed in the new IEA report  and also at a major IEA Roundtable featuring the insights of financial, legal, industry and policy experts from across Asia, which was held in Singapore on 1 November as part of the Singapore International Energy Week.

Bridging investment gaps with more private finance

To date, public actors – including state-owned enterprises and public financial institutions – have provided the bulk of funding for the power sector, particularly in thermal generation. By contrast, wind and solar PV projects have relied much more on private finance, spurred by specific policy incentives.

In addition, funding for over three-quarters of generation investment has come from within the region. This landscape reflects prevailing decision-making frameworks, which have largely revolved around state-owned utilities and the distortionary impact of energy subsidies, but also the ability and willingness of private players to navigate perceived country, regulatory and market risks that have inhibited much higher levels of investment in the power sector across Southeast Asia. 

However, public sources alone cannot cover the sizeable investment needs ahead. Sustained and balanced access to international and regional sources of private finance, complemented by public sources, would better help Southeast Asia fund its energy goals. More robust private financing conditions would help governments to use public capital more effectively, especially in countries with limited fiscal capacity.

Realising this requires reforms and greater policy focus on tackling the risks facing investments, especially in renewables, flexibility assets and efficiency. With the dramatically improved economics of renewables in many parts of the world, the region now has a compelling opportunity to transform its power sector.

While recognizing that market conditions and underlying risks differ starkly by country, the SEAO points to efforts needed across four priority areas:

  • enhancing the financial sustainability of the region’s utilities;
  • improving procurement frameworks and contracting mechanisms, especially for renewables;
  • creating a supportive financial system that brings in a range of financing sources and
  • promoting integrated approaches that take the demand-side into account.

Priority 1: Enhancing the financial sustainability of the region’s utilities

The region’s utilities, mostly state-owned, function as the primary counterparty to private generators and are the main investors in electricity networks (which as highlighted in the SEAO, are also crucial for supporting regional trade and integration). Their financial sustainability depends on their ability to recover costs, which is influenced by customer connections, operational performance and regulatory frameworks. Cost-recovery varies across Southeast Asian markets, with particular challenges related to setting retail tariffs in a way that balances system needs and affordability for consumers.

For example, despite improved borrowing conditions for Vietnam Electricity (EVN), financial performance is tenuous and tied to government decisions on electricity prices, which remain low by international standards. By contrast, in Malaysia, a combination of improved operations, better financing and regulations for cost-pass-through supports a relatively high level of per capita investment for grids. 

Underperformance can put pressure on government budgets, as in the case of Indonesia. Following several years of improvement, increased financial pressure on PLN, due to rising power purchase and fuel costs in the face of frozen retail tariffs, prompted a year-on-year boost in government subsidies in 2018 (equivalent to over 3% of total state spending). Looking ahead, PLN’s subsidy burden could be sizeably reduced through more cost reflective electricity tariffs. Moreover, changes to retail prices could be tempered through better utilisation of existing generation, more focus on efficiency measures to help slow Indonesia’s demand growth and less dramatic expansion of capacity with contractually onerous terms.

Priority 2: Improving procurement frameworks and contracting mechanisms, especially for renewables

Investment frameworks for power generation have evolved considerably, but further reform could help improve private financing prospects. While independent power producer (IPP) investments are playing an increased role, these have come mostly through administrative mechanisms, such as direct negotiation with utilities, which are often not transparent in terms of price formulation. Price incentives (e.g. feed-in tariffs) under licensing schemes have driven most investment in renewables, but their design is not always effective; in some cases (e.g. Indonesia) tariffs have been set too low to attract investment at current project costs.

Competitive auctions, which can provide price discovery and clear risk allocation through contracts, have helped drive down renewable purchase prices around the world. Most Southeast Asian countries have been slow to adopt them, but implementing such transparent mechanisms for orderly market entry, with a commitment to sustain their use over time, would go a long way to reassure investors.

The case of Viet Nam illustrates challenges and opportunities in terms of policy design and bankability. Attractive feed-in tariffs spurred a boom in solar PV deployment in the first half of 2019, financed mostly by regional players. Yet, perceived risks and financing costs are relatively high and international banks remain reluctant to lend to renewables projects. This stems from risks associated with the standard power purchase agreement offered to IPPs, including areas related to dispatch and payments, as well as concerns over the adequacy of local grids to accommodate a rapid increase in variable generation. Clearer regulations, better policy design, and measures to address system integration and contractual concerns could help to improve the affordability of investments. With financing terms equivalent to those found in more mature markets, generation costs for solar PV and onshore wind could be around one-third lower.

Priority 3: Creating a supportive financial system that brings in a range of financing sources

As changing financing conditions make investing in some legacy parts of the power system more difficult, more effort is needed to cultivate a supportive financing environment for newer technologies while ensuring security of supply. To illustrate, final investment decisions for coal power in the region have fallen to their lowest level in over a decade in 2019 (reflecting a mixture of increased financial scrutiny by banks and overcapacity concerns). There has been a reduction in the number of financiers involved in transactions in the past three years, while IPP projects that have gone ahead continue to rely on a high share of international public finance. 

At the same time, mobilising capital in newer areas requires improving the cost and availability of finance. The average loan duration in Southeast Asia is just over six years, far less than the lifetimes of energy and infrastructure assets. The cost of capital for an indicative IPP varies widely – with estimates in Singapore, Thailand and Malaysia at 3-5% (nominal, after-tax), while those for Philippines, Viet Nam and Indonesia are much higher (7-10%). Investors cite limited availability of early stage project development equity and long-term construction debt for renewables and storage, though some dedicated funds, such as the Southeast Asia Clean Energy Facility, are emerging to fill the gap.

Priority 4: Promoting integrated approaches to investment that address the demand side

Integrated approaches to investment, which take into account the demand side, could help to address rising consumption needs more cost-effectively. This is particularly true in fast-growing areas, such as demand for cooling, which is a major driver of supply requirements during peak hours but where more efficient air conditioner units, including those manufactured locally, are available at affordable prices. Efficiency investments can face barriers due to the small transaction sizes (from the perspective of banks), high upfront capital requirements (from the perspective of consumers), challenges in evaluating creditworthiness, and lack of clear labelling to support purchase choices. Low and subsidised retail power tariffs can also distort the investment case. 

Addressing information barriers, enhancing financing models and reducing subsidies would better support investment. Energy service companies are addressing the scale and upfront financing challenge of investment. They are well established in markets with long-term energy savings targets and supporting regulations, such as in Malaysia, Thailand and Singapore. Targeted use of public funds, insurance and capacity building can help reduce performance-related risks, as in Indonesia’s Energy Efficiency Project Finance Program. Progress in aggregating and securitising projects, through green bonds for example, could also help attract lower cost finance from a bigger pool of investors. Despite picking up in 2018, with over 40% targeting low-carbon buildings, Southeast Asia accounts for only 1% of global green bonds issuance to date.

Higher investments would yield multiple benefits

Overall, achieving Southeast Asia’s energy goals will call upon stronger policy ambitions across a range of energy sources and significant new capital commitments in the years ahead. As international experiences have demonstrated, where governments provide frameworks that allow for the efficient allocation and management of investment risks, the private sector responds and the cost of capital is reduced. 

These efforts would also yield multiple benefits – in the Sustainable Development Scenario, average annual capital spending across the entire energy sector of more than $140 billion over 2019-40 (higher than the $110 billion under the State Policies Scenario), is offset by the nearly $200 billion that Southeast Asian economies would save annually on fossil fuel imports by 2040. Such financial savings would come in addition to improved local air quality and universal energy access, as well as a reduced contribution to global climate change.

There is now an opportunity for investors and companies in Southeast Asian countries to engage with governments in order to encourage financial decisions and policy making that are better aligned with sustainability goals. This includes not just traditional utilities, developers and banks, but also the crucial perspectives of development finance institutions and the institutional investors, whose participation will be critical to funding the region’s energy goals.

As the world’s “All-fuels and All-technologies” energy authority, the IEA will continue to assist ASEAN Member States to tackle their energy policy challenges, including through good data and analysis, training and capacity building and enhanced engagement.

*Lucila Arboleya, Energy Economics and Financial Analyst.

IEA

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Understanding the World Energy Outlook scenarios

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Authors: Laura Cozzi and Tim Gould

Today’s energy choices and their consequences

Today’s energy choices will shape the future of energy, but how should we assess their impact and adequacy? This is the task the World Energy Outlook takes on. It aims to inform the thinking of decision makers as they design new policies or consider new investments. It does so by exploring possible futures, the ways they come about and some of the main uncertainties – and it lays out the consequences of different choices for our energy use, energy security and environment.

One key element of this is to assess where the global energy system is heading, based on the policy plans and investment choices we see today. A second is to assess what would need to be done differently in order to reach the climate, energy access, pollution and other goals that policy makers have set themselves.

As ever, this year’s World Energy Outlook, to be released on 13 November, brings many changes from the 2018 edition. In this commentary, we wanted to highlight two in particular.

Introducing the Stated Policies Scenario

In this year’s Outlook, the New Policies Scenario is renamed as the Stated Policies Scenario (the acronym is STEPS – STated Energy Policies Scenario). As with its predecessor, this scenario is designed to reflect the impact not just of existing policy frameworks, but also of today’s stated policy plans. The name change underlines that this scenario considers only those policy initiatives that have already been announced. The aim is to hold up a mirror to the plans of today’s policy makers and illustrate their consequences, not to guess how these policy preferences may change in the future.

The planned policies analysed in this scenario cover a wide spectrum. For example, a country might state that it intends to remove fossil-fuel consumption subsidies or, alternatively, that it will walk back a previous reform. Another might say that it will tighten future fuel efficiency standards or step up support for electric vehicles. One might open up new resource developments in oil and gas while another might limit them.

Many countries today are raising their ambitions for clean energy deployment, as reflected by the rising interest in offshore wind that we explored in depth in a special focus from this year’s World Energy Outlook that was released separately in Copenhagen last week. Countries may also announce new rural electrification targets or ambitions to bring clean fuels to parts of their population that rely on firewood or other solid biomass for cooking.

All of these stated policies are assessed individually and their impacts are modelled. In our updated and expanded online explainer on the World Energy Model, the large-scale simulation model that is used to generate all our projections, we have made all the key policy assumptions available for all scenarios, along with all the underlying assumptions on population, economic growth and energy resources (which are held constant across the scenarios) and information on prices and technology costs (which vary by scenario depending on the market and policy context).

There is one type of policy announcement that deserves special attention: the growing number of long-term decarbonisation targets, including “net zero” commitments. After the UN Climate Summit in September, there were at least 65 jurisdictions, including the European Union, that had set or were actively considering long-term net-zero carbon targets. These economies together accounted for 21% of global gross domestic product and nearly 13% of energy-related CO2 emissions in 2018.

Are these “net zero” targets all incorporated into the Stated Policies Scenario? It depends. The target has to be announced or adopted officially, but the crucial variable is how visible the pathway is to reach it. As always with the World Energy Outlook, the details matter. Is there a strategy to decarbonise heat? What about heavy industry? What about trucks or aviation? To the extent that these pathways are laid out, then the overall ambition is also reflected in this scenario.

And it’s not only about national governments: other commitments are becoming increasingly important, whether from sub-national authorities, cities, companies or investors. We also keep a close eye on changing public attitudes and preferences, as these can be very significant in shaping energy use (as, for example, with the rising popularity of SUVs).

In aggregate, these commitments are enough to make a significant difference. The comparison with the Current Policies Scenario, which only looks only at policies in place but from which the effects of announced policies are excluded, makes this clear. However, there is still a large gap between the projections in the Stated Policies Scenario and an energy system that meets global sustainable energy goals.

Extending the Sustainable Development Scenario to 2050

What should policy makers do? What pathways might help meet these targets? What technologies need a boost? Where should innovation, research and investment be directed? How can we balance growing energy demand with the need to reduce air pollution and carbon emissions? How can millions of people gain access to critical energy services while also meeting climate goals?

The IEA seeks to help policy makers in government and industry shape a more secure and sustainable energy future. This is why the World Energy Outlook has been providing detailed climate mitigation scenarios for more than a decade. Two years ago, we introduced a new scenario, the Sustainable Development Scenario, which also incorporates two other crucial elements of the Sustainable Development agenda: cleaner air and universal access to energy, in addition to climate targets.

In the IEA’s view, these elements are profoundly interconnected aspects of global energy transitions. The Sustainable Development Scenario is one of the very few deep decarbonisation scenarios that considers all of them in detail and provides a pathway that achieves them simultaneously, along with detailed attention to the security and affordability of energy supply. In our view, no vision of a sustainable energy world can be considered complete if parts of the global population do not have access to modern energy.

Another new feature of this year’s WEO is that the horizon for the Sustainable Development Scenario is extended by a decade to 2050. This has little impact on achieving modern energy for all, both for electricity and clean cooking. That goal is reached by 2030 in this scenario. But it provides a clearer view on how dramatic improvements in air quality reduce pollution-related premature deaths. And it gives considerable additional clarity on how the scenario meets the Paris Agreement goal of holding the rise in global temperatures to “well below 2°C … and pursuing efforts to limit [it] to 1.5°C.”

The Sustainable Development Scenario models a rapid and deep transformation of the global energy sector. It is consistent with all the “net zero” goals contemplated today being reached on schedule and in full. The technology learning and policy momentum that they generate means that they become the leading edge of a much broader worldwide effort, bringing global energy-related CO2 emissions down sharply to less than 10 billion tonnes by 2050, on track for global net zero by 2070.

This means that the Sustainable Development Scenario is “likely” (with 66% probability) to limit the rise in the average global temperature to 1.8 °C, which is broadly equivalent to a 50% probability of 1.65 °C stabilisation. These outcomes are achieved without any recourse to net negative emissions.

How does this scenario relate to the pursuit of a 1.5 °C outcome? For one answer to this question, we turned to the IPCC Special Report on 1.5 °C. Almost all the 1.5 °C scenarios assessed by the IPCC (88 out of 90) assume some level of net negative emissions. A level of net negative emissions significantly smaller than that used in most scenarios assessed by the IPCC would provide the Sustainable Development Scenario with a 50% probability of limiting the rise in global temperatures to 1.5°C.

However, as we have pointed out in the past, there are reasons to limit reliance on early-stage technologies for which future rates of deployment are highly uncertain. That is why the Outlook has always emphasised the importance of early policy action. That is also why, in the WEO-2019, we explore what it would take to achieve stabilisation at 1.5 °C with a 50% probability without net negative emissions.

Two different types of scenario make a powerful mix

The World Energy Outlook incorporates two different approaches to scenario design. The first defines a set of starting conditions and sees where they lead; the Stated Policies Scenario and the Current Policies Scenario are of this type.

The second approach does the opposite, defining a set of ambitious future outcomes and then working out how they can be achieved: this is the principle underlying the Sustainable Development Scenario.

Each of these approaches, on its own, offers powerful insights. In combination, they provide a broad perspective not just on the energy and climate challenges that we face today, but on what can be done to address them.

*Tim Gould, Head of Division for Energy Supply Outlooks and Investment.

IEA

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