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The International Energy Agency (IEA- an autonomous organization which works to ensure reliable, affordable and clean energy for its 29 member countries and beyond) has issued a special report entitled “Energy and Climate Change” which proposes a “bridging strategy” that could deliver a peak in global energy-related emissions by the end of 2020 without reducing economic growth. The IEA no doubt hopes its strategy will provide a roadmap for countries meeting in Paris in December 2015 for the 21st Conference of the Parties (COP21) of the United Nations Framework Convention on Climate Change (the ill-fated Kyoto Protocol was developed at the UNFCCC COP3 held in Kyoto, Japan in 1997). Since the report likely will be required reading for energy executives, readers of this blog might be interested in reviewing the following points taken from the executive summary of the IEA report.
IEA noted that energy will be at the core of the discussion at COP21 in Paris. The use of low-carbon energy sources is expanding rapidly, and there are signs that the growth in the global economy and energy-related emissions may be starting to “decouple.” IEA posits that nationally determined pledges (referred to as Intended Nationally Determined Contributions or “INDCs”) will be the foundation of COP21and recent pledges by the US, the European Union, Russia and Mexico and “policy statements” by countries like China show that carbon energy related GHG emissions may peak in the coming decades. However, IEA agues that stronger action is needed to limit global warming below an increase of 2 °C relative to pre-industrial levels (which climate scientists consider as a threshold which society should endeavor to remain below, in order to limit the dangerous effects of anthropogenic climate change) and that national pledges submitted for COP21 need to form the basis for a “virtuous cycle” of rising ambition to achieve a global peak by 2030:
From COP21, the energy sector needs to see a projection from political leaders at the highest level of clarity of purpose and certainty of action, creating a clear expectation of global and national low-carbon development. Four pillars can support that achievement:
1. Peak in emissions – set the conditions which will achieve an early peak in global energy-related emissions.
2. Five-year revision – review contributions regularly, to test the scope to lift the level of ambition.
3. Lock in the vision – translate the established climate goal into a collective long-term emissions goal, with shorter-term commitments that are consistent with the longterm vision.
4. Track the transition – establish an effective process for tracking achievements in the energy sector.
IEA proposes a bridging strategy that could deliver a peak in the global energy-related emissions by 2020. IEA believes this peak in emissions can be achieved by the following Bridge Scenario:
A commitment to target such a near-term peak would send a clear message of political determination to stay below the 2 °C climate limit. The peak can be achieved relying solely on proven technologies and policies, without changing the economic and development prospects of any region, and is presented in a “Bridge Scenario”. The technologies and policies reflected in the Bridge Scenario are essential to secure the longterm decarbonisation of the energy sector and their near-term adoption can help keep the door to the 2 °C goal open. For countries that have submitted their INDCs, the proposed strategy identifies possible areas for over-achievement. For those that have yet to make a submission, it sets out a pragmatic baseline for ambition.
The Bridge Scenario depends upon five measures:
• Increasing energy efficiency in the industry, buildings and transport sectors.
• Progressively reducing the use of the least-efficient coal-fired power plants and banning their construction.
• Increasing investment in renewable energy technologies in the power sector from $270 billion in 2014 to $400 billion in 2030.
• Gradual phasing out of fossil-fuel subsidies to end-users by 2030.
• Reducing methane emissions in oil and gas production.
The IEA strategy clearly relies on maximum commitments to low carbon energy. Further, it appears that the strategy could be derailed by the failure of China, India or other countries to lower their energy emissions sooner rather than later. Therefore, those of us in the US and Canada who witnessed the efforts to address climate change via the Kyoto Protocol flounder over time may be tempted to dismiss the IEA report as another international idea that may never get traction. However, the following excerpts from a recent letter by major European-based energy companies suggest we should carefully consider this report and pay close attention to COP21:
Climate change is a critical challenge for our world. As major companies from the oil & gas sector, we recognize both the importance of the climate challenge and the importance of energy to human life and well-being. We acknowledge that the current trend of greenhouse gas emissions is in excess of what the Intergovernmental Panel on Climate Change (IPCC) says is needed to limit the temperature rise to no more than 2 degrees above pre-industrial levels. The challenge is how to meet greater energy demand with less CO2. We stand ready to play our part.
For us to do more, we need governments across the world to provide us with clear, stable, long-term, ambitious policy frameworks. This would reduce uncertainty and help stimulate investments in the right low carbon technologies and the right resources at the right pace.
We believe that a price on carbon should be a key element of these frameworks. If governments act to price carbon, this discourages high carbon options and encourages the most efficient ways of reducing emissions widely, including reduced demand for the most carbon intensive fossil fuels, greater energy efficiency, the use of natural gas in place of coal, increased investment in carbon capture and storage, renewable energy, smart buildings and grids, off-grid access to energy, cleaner cars and new mobility business models and behaviors.
We acknowledge the long-term challenge and appreciate that this will be transformative across the energy sector. Over many decades, our industry has been innovative and has been at the forefront of change. We are confident that we can build on our trajectory of innovation to meet the challenges of the future.
Each of us will copy this letter personally to key contacts among investors, governments, civil society and our staff.
This letter dated May 29, 2015, signed by executives of the BG Group plc, BP plc, Eni S.p.A, Royal Dutch Shell plc, Statoil ASA and Total S.A. was addressed to the Executive Secretary of the UNFCCC and the President of COP21.
While we cannot know how countries will respond to the IEA Bridging Strategy or what INDCs will be made in Paris at COP21, the sentiments of six of the largest international energy companies cannot be ignored and likely will help proponents of an aggressive strategy to limit carbon emissions. In addition, EPA may cite to and rely upon the IEA report when it issues draft regulations in the coming weeks setting standards to reduce methane and volatile organic compound emissions from oil and gas operations. Therefore, professionals who work in or for the energy industry may benefit by reviewing the IEA report and monitoring future developments.
Stephen C. Smith, Of Counsel, Steptoe & Johnson PLLC
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