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The Politics and Economics of
International Energy
Lecture 1
Introduction – Long-Term Energy Scenarios –
Dimensions of the Energy Issue in International
Relations
Prof. Giacomo Luciani
© Copyright Giacomo Luciani
Contact details
 Giacomo.luciani@graduateinstitute.ch
 Office telephone: +41 22 7162730
 Office hours:
By appointment
c/o Gulf Research Center Foundation
49, Avenue Blanc, 1202 Genève
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Readings
 Too much to read…
 You should:
 Learn to read selectively
 Make sure that you can retrieve, not
necessarily recall, relevant information
 Separate the gold from the sand
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Readings availability

CD-Rom containing a large part of the readings and other
important documentation.

The contents of the CD-Rom will also be available on the
Intranet and a copy of the CD will be deposited in the Library.
Readings MUST be completed IN ADVANCE of each class.

However, you are not expected to read everything: you should
use your judgment in selecting what is truly important.

Readings that are available only on paper are highlighted in
yellow.

Background reading: Daniel Yergin, “The Prize: The Epic
Quest for Oil, Money, and Power”

You are expected to read this book in parallel with class
proceeding although it is not listed as reading for any class. It
is fun to read anyhow.
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Requirements
 A mid term and a final
 Short (max 700 words) professional
memo on one out of three or four
topics proposed
 You will be able to use all course
material and sources
 Topics will be drawn from current
developments
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Global Energy Trends
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The Global Crisis
 We have witnessed an earthquake of 9+
magnitude (Richter scale – 1 every 20 years)
in the global political economy.
 Earthquakes are caused by movement in the
tectonic plates: over time, these movements
accumulate unresolved stress – the quake
releases the stress.
 Unresolved stress = unadjusted disequilibria
Which tectonic plates
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 The recent earthquake is the result of
the clash of several tectonic plates





Finance
Energy
Globalization and division of labor
Military power
Global governance
 The epicenter has been in the US
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Finance stress lines in the US
 Excessive indebtedness of families
 Large and rapidly growing
government deficit
 Large and growing trade deficit
 CURRENT TRENDS ARE NOT
SUSTAINABLE
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Energy stress lines
 Global warming
 Alienation of companies from
resources and vice-versa
 Huge gaps in energy consumption
standards
 CURRENT TRENDS ARE NOT
SUSTAINABLE
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© Copyright Giacomo Luciani
© Copyright Giacomo Luciani
© Copyright Giacomo Luciani
© Copyright Giacomo Luciani
A word about scenarios 1
 Global energy scenarios are complex– only
few institutions can afford to produce them
 The most widely quoted are IEA’s and
EIA’s; also to be considered: OPEC (for oil),
EU Commission, ExxonMobil, Shell; other
institutions produce occasional scenarios
 IEA: World Energy Outlook (WEO)
published in November each year
 EIA: International Energy Outlook (IEO)
published in June each year
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A word about scenarios 2
 Scenarios are not meant to be realistic
images of the future
 They extrapolate trends under certain
assumptions
 They allow exploring the sustainability or
coherence of policies
 They generally contain one or more
“messages”
 They reflect the politics of the institution
producing them
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Determinants of energy demand
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Diminishing energy intensity
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Limited catch-up
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Growing global energy demand
Mtoe
World primary energy demand in the
Reference Scenario: this is unsustainable!
18 000
Other renewables
16 000
Hydro
14 000
Nuclear
12 000
Biomass
10 000
8 000
Gas
6 000
Coal
4 000
Oil
2 000
0
1980
1990
2000
2010
2020
2030
World energy demand expands by 45% between now and 2030 – an average rate of increase
of 1.6% per year – with coal accounting for more than a third of the overall rise
© OECD/IEA - 2008
Reference Scenario:
The Emerging Giants of World Energy
100%
Increase in Primary Energy Demand & Investment
Between 2005 & 2030 as Share of World Total
Rest of the world
India
China
80%
60%
40%
20%
0%
Total
energy
Coal
Oil
Nuclear
Hydro Power sector
investments
China & India will contribute more than 40% of the
increase in global energy demand to 2030 on current
© OECD/IEA - 2007
Gigatonnes
Energy-related CO2 emissions
in the Reference Scenario
45
International
marine bunkers
and aviation
40
Non-OECD - gas
35
Non-OECD - oil
30
Non-OECD - coal
OECD - gas
25
OECD - oil
20
OECD - coal
15
10
5
0
1980
1990
2000
2010
2020
2030
97% of the projected increase in emissions between now & 2030 comes from non-OECD
countries – three-quarters from China, India & the Middle East alone
© OECD/IEA - 2008
Energy-Related CO2 Emissions by
Region, 1900-2005
10 000
million tonnes
8 000
Cumulative emissions
Rest of the
world
33%
United States
30%
6 000
India
2%
4 000
China
8% Japan
4%
European
Union
23%
2 000
0
1900
© OECD/IEA - 2007
1915
1930
1945
1960
1975
1990
2005
Over the last century, China has contributed only 8% of global
emissions & India 2%
Reference Scenario:
World’s Top Five CO2 Emitters
2005
2015
2030
Gt
rank
Gt
rank
Gt
rank
US
5.8
1
6.4
2
6.9
2
China
5.1
2
8.6
1
11.4
1
Russia
1.5
3
1.8
4
2.0
4
Japan
1.2
4
1.3
5
1.2
5
India
1.1
5
1.8
3
3.3
3
China overtook the US to become the largest emitter in
2007, while India becomes the third-largest by 2015
© OECD/IEA - 2007
Mtoe
World primary energy demand in the
Reference Scenario
6 000
Oil
5 000
Coal
Gas
4 000
Biomass
3 000
Nuclear
Hydro
2 000
Other
renewables
1 000
0
1980
1990
2000
2010
2020
2030
World energy demand expands by 45% between 2006 and 2030 – an average rate of increase
of 1.6% per year – with coal accounting for more than a third of the overall rise
© OECD/IEA - 2008
Cumulative energy-supply investment
in the Reference Scenario, 2007-2030
Coal
3%
$0.7 trillion
Transmission
& distribution
50%
Power
Oil
Gas
52%
$13.6 trillion
24%
$6.3 trillion
21%
$5.5 trillion
Shipping
4%
Refining
16%
Power
generation
50%
Exploration and
development
80%
Transmission
& distribution
31%
LNG chain
8%
Biofuels
<1%
$0.2 trillion
Shipping &
ports
9%
Exploration &
development
61%
Mining
91%
Investment of $26 trillion, or over $1 trillion/year, is needed, but the credit squeeze could
delay spending, potentially setting up a supply-crunch once the economy recovers
© OECD/IEA - 2008
Gigatonnes
World energy-related CO2 emissions
in 2030 by scenario
40
35
OECD
30
25
20
World
15
Non-OECD
World
10
5
0
Reference Scenario
550 Policy Scenario
450 Policy Scenario
OECD countries alone cannot put the world onto a 450-ppm trajectory,
even if they were to reduce their emissions to zero
© OECD/IEA - 2008
Share of renewables in electricity
generation in the Reference Scenario
Hydro
Other (wind, solar, etc)
World
2006
2015
2030
OECD
2006
2015
Non-OECD
2030
2006
2015
2030
0%
5%
10%
15%
20%
25%
30%
Soon after 2010, renewables become the 2nd-largest source of electricity behind coal, thanks
to government support, prospects for higher fossil-fuel prices & declining investment costs
© OECD/IEA - 2008
Total oil production in 2030 by
scenario
mb/d
120
Non-OPEC
OPEC
100
9 mb/d
16 mb/d
80
60
40
20
0
2007
Reference Scenario 550 Policy Scenario
2030
2030
450 Policy Scenario
2030
Curbing CO2 emissions would improve energy security by cutting demand for fossil fuels, but
even in the 450 Policy Scenario, OPEC production increases by 12 mb/d from now to 2030
© OECD/IEA - 2008
Gigatonnes
Reductions in energy-related CO2
emissions in the climate-policy scenarios
45
550
Policy
Scenario
40
450
Policy
Scenario
9%
14%
35
23%
30
54%
Nuclear
CCS
Renewables & biofuels
Energy efficiency
25
20
2005
2010
2015
Reference Scenario
2020
550 Policy Scenario
2025
2030
450 Policy Scenario
While technological progress is needed to achieve some emissions reductions, efficiency
gains and deployment of existing low-carbon energy accounts for most of the savings
© OECD/IEA - 2008
Total power generation capacity today
and in 2030 by scenario
Coal
1.2 x today
Gas
1.5 x today
Nuclear
1.8 x today
Hydro
2.1 x today
Wind
13.5 x today
Other renewables
12.5 x today
Coal and gas with CCS
15% of today’s coal & gas capacity
0
1 000
Today
Reference Scenario 2030
2 000
3 000
GW
450 Policy Scenario 2030
In the 450 Policy Scenario, the power sector undergoes a dramatic change – with CCS,
renewables and nuclear each playing a crucial role
© OECD/IEA - 2008
Average Annual Power Generation
Capacity Additions in the 450
Stabilisation Case, 2013-2030
Coal CCS
22 CCS coal-fired plants (800 MW)
20 CCS gas-fired plants (500 MW)
Gas CCS
30 nuclear reactors (1000 MW)
Nuclear
Hydropower
2 Three Gorges Dams
Biomass and waste
400 CHP plants (40 MW)
Wind
17 000 turbines (3 MW)
Other Renewables
0
10
20
30
GW
40
50
60
A large amount of capacity would need to be retired early,
entailing substantial costs
© OECD/IEA - 2007
Key results of the post-2012
climate-policy analysis
550 Policy Scenario
450 Policy Scenario
 Corresponds to a c.3C global
temperature rise
 Energy demand continues to
expand, but fuel mix is markedly
different
 CO2 price in OECD countries
reaches $90/tonne in 2030
 Additional investment equal to
0.25% of GDP
 Corresponds to a c.2C global
temperature rise
 Energy demand grows, but half
as fast as in Reference Scenario
 Rapid deployment of low-carbon
technologies – particularly CCS
 Big fall in non-OECD emissions
 CO2 price in 2030 reaches
$180/tonne
 OPEC production still 12mb/d
higher in 2030 than today
 Additional investment equal to
0.6% of GDP
© OECD/IEA - 2008
Summary & conclusions
 Current energy trends are patently unsustainable — socially,
environmentally, economically
 Oil will remain the leading energy source but...
> The era of cheap oil is over, although price volatility will remain
> Oilfield decline is the key determinant of investment needs
> The oil market is undergoing major and lasting structural change, with
national companies in the ascendancy
 To avoid "abrupt and irreversible" climate change we need a
major decarbonisation of the world’s energy system
> Copenhagen must deliver a credible post-2012 climate regime
> Limiting temperature rise to 2C will require significant emission
reductions in all regions & technological breakthroughs
> Mitigating climate change will substantially improve energy security
 The present economic worries do not excuse back-tracking or delays
in taking action to address energy challenges
© OECD/IEA - 2008
Copenhagen: a plausible post-2012 global
climate-change policy regime
550 Policy Scenario
The 450
Power
generation
Industry
OECD+
Cap and trade
Other Major
Economies
Other
Countries
National
Cap and trade
policies and
measures
International sectoral approaches
National
policies and
measures
Transport
International sectoral approaches
Buildings
National policies and measures
A combination of policy mechanisms – reflecting nations’ varied circumstances & current
negotiating positions – is a realistic outcome at the Copenhagen COP at end-2009
© OECD/IEA - 2008
Billion dollars (2007)
Change in world energy investment in the 550 Policy
relative to the Reference Scenario, 2010-2030
2 000
1 000
0
-1 000
-2 000
-3 000
Power plants
Power
Fossil fuel
transmission supply
and
distribution
Biofuels
Efficiency - Efficiency - Efficiency buildings
transport
industry
Most of the incremental investment in the 550 Policy Scenario is in existing technologies
© OECD/IEA - 2008
Billion dollars (2007)
Additional investments in the climate-policy
scenarios versus the Reference Scenario
5 000
450 Policy Scenario
(additional to 550)
4 000
550 Policy Scenario
3 000
2 000
1 000
0
2010-2020
2021-2030
Power plants
2010-2020
2021-2030
Energy efficiency
Power-sector investment in the last decade of the Outlook period in the 450 Policy
Scenario is almost double that in the Reference Scenario
© OECD/IEA - 2008
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WEO 2009 Preliminary results
Given the present crisis, the IEA now
forecasts that the global oil demand
will only grow by 0.6% per year
during the 2008-2014 period to reach
89m b/d in 2014.
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Other Scenarios
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Energy and Poverty
Population without electricity, 2006
In 2030, if no major new policies are implemented,
there will still be 1.4 billion people without electricity.
© OECD/IEA - 2007
Energy Poverty: Annual Deaths from
Indoor Air Pollution
3
2.8
2
millions
1.6
1.2
1.3
Malaria
Smoke from
biomass
1
0
Tuberculosis
HIV/AIDS
Source: World Health Organization
The number of people using dirty traditional biomass for
cooking is set to grow from 2.5 billion now to 2.7 billion in
2030 absent new policies
© OECD/IEA - 2007
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