Energy Transitions in Globalised Markets and Challenges - Takeaways from the 42nd IAEE Conference
Sid Ahmed Hamdani - Energy, Environment & Policy Analyst at EEFD
The 42nd edition of the International Association of Energy Economics (IAEE) Conference was held on May 29- June 1, 2019 in Montreal, and was organised jointly with HEC Montreal, the Group of Research in Decision Analysis (GERAD) and the Canadian Association of Energy Economics. The conference was organised under the theme "Local Energy, Global Markets" with a focus on the development of local energy sources, their abilities and challenges to reach global energy markets and deal with global issues including climate change.
More than 500 delegates including policy-makers, academic researchers and various professionals from the energy sector attended the conference. An ample mix of presentations and research papers were introduced, in plenary or concurrent sessions, discussing the latest movements in the energy sector.
The GECF, represented by Mr. Sid Ahmed Hamdani, Energy, Environment and Policy Analyst, joined the discussions and addressed the audience about the global prospects of CO2 emissions in the power sector and the mitigating role of natural gas. Using the "decomposition analysis" methodology, Mr. Hamdani highlighted the main drivers of future power-related emissions.
The analysis outlined that three factors, namely renewables - and especially heavily intermittent renewables such as wind and solar; the substitution of fossil fuels by less carbon dioxide intensive sources of energy; and thermal efficiency improvements, are the driving forces of emission mitigation in the power sector. These drivers contribute substantially to reducing the anticipated rise in emissions, due to increased power generation on a global level. Natural gas fits into all of these drivers, because not only can it be used as a substitute for more carbon-intensive fossil fuels, it also contributes to the increased thermal efficiency of power plants and enables the penetration of intermittent renewables by providing the required flexibility for power systems.
The major topics and takeaways from this conference are outlined as follows:
Dealing with the challenges of oil and gas
This debate focused on the ways the oil and gas industry is dealing with increased complexity and challenges. One key takeaway from this discussion is that society will still need hydrocarbons to meet the demands of a growing population and economy and that globalised markets offer great opportunities for different industry actors to meet the future oil and gas demand.
Nevertheless, the industry strives to meet this demand in sustainable ways. It has responded to sustainability challenges through innovation and by developing technologies that make supply chains more efficient, more secure, and with less impact on the environment.
Several cases have been presented to show the variety of technology options and the progress that was made to improve the sustainability of oil and gas operations. Among these options are electrification of supply processes using hydropower, wind and solar energy; less utilization of chemical inputs for operations, improvement in equipment efficiency. Furthermore, the industry has made huge strides in enhancing oil and gas recovery by generalizing the application of secondary and tertiary recovery techniques. In the oil sector, these techniques allow for a significant increase in production and efficiency compared to traditional primary techniques that keep more than 90% of the oil resources in the conventional reservoir. Enhanced oil recovery techniques start to be applied for unconventional oil fields in North America with promising results.
Digitalization is another technology response that facilitates improved efficiency and competitiveness and that reduces environmental impacts - especially when it comes to detecting leakages across the hydrocarbon supply chain, including methane leaks.
Infrastructure and market access
Energy producers face a growing challenge to access markets due to the lack of infrastructure and limitations on transmission capacity- which become a serious concern in different markets. The absence of the right infrastructure has greatly affected the economy of supplying energy sources, as it is the case for oil and gas in North America. In this region, the infrastructure availability issue has recently driven the observed divergence between prices at different regional hubs. It has also led to increased gas flaring, particularly in the Permian basin in Texas and New Mexico.
The electricity sector is experiencing similar hurdles, driven by the huge need for the transmission capacity to support the balancing of supply and demand, in order to support variable renewables.
Infrastructure development requires a huge amount of investment, which energy actors struggle to secure because of the great uncertainties observed on the market, in particular the unpredictability from a regulatory point of view. One of the points raised in this discussion is that many markets have seen regulatory inflation, pushed by sustainable development concerns, and many of these regulations are overlapping. The key message here is that there is a pressing need for certainties regarding the regulatory framework and visibility of the same, in order to allow investments in energy infrastructure to keep pace with market requirements.
Electricity development in the context of energy transitions
Electrification has emerged as a key trend in the energy transition push, spurred on by the progress of renewables and penetration of electricity in the energy end-use sectors. The growing role of electricity prosumers, development of storage and smart technologies call for new business models for the power utilities.
The takeaway from this discussion is that power utilities, particularly in developed markets, have to adapt and change their business-planning model from the traditional centralized model to a more decentralized approach. This will enable them to develop flexible solutions to ensure reliable and competitive electricity supply.
By the same token, power utilities have to look for opportunities for integration and synergies between energy-based services (e.g. electricity, gas, heat) across various segments of the energy value chain, including production, transport, distribution, and storage. Technology is a key driver in defining this new business model.
The role of carbon pricing in supporting CO2 emission mitigation was a main focal point of this 42nd edition of the IAEE. Mr. Ian Parry, who is the Principal Environmental Fiscal Policy Expert in the International Monetary Fund’s (IMF) Fiscal Affairs Department, presented the results of a model-based study that assess the potential impacts of applying a carbon tax in different countries. A major outcome of this study is that the level of carbon tax that allows countries to meet their carbon mitigation pledges is vastly different from one country to another. This is not only because of the stringency of countries’ climate commitments, but also because of the degree of responsiveness of countries’ emissions to the carbon tax, depending on the structure of their energy system.
Countries that consume a lot of coal are in general more responsive because of the large mitigation potential that can be achieved by substituting coal with other alternatives. As a result, a relatively low level of carbon tax can be sufficient to allow them to meet their climate commitments.
In this discussion, several speakers pointed out that carbon pricing, either in the form of carbon taxes or emission trading systems, is a key instrument that enables the acceleration of carbon mitigation in cost-efficient and effective ways. Nevertheless, there was an overwhelming consensus on the need to improve the design of carbon pricing policies to achieve better relevance of prices and resilience to different markets’ perturbations. This design also has to consider the trade-offs with other policies that might overlap with carbon pricing and affect its effectiveness in mitigating CO2 emissions.
Aligning energy transitions with climate objectives
The discussion in this topic focused on the role of energy systems’ transformation in meeting the ambitious climate objectives set in the Paris Agreement. In this discussion, Mr. John Weyant from Standford University stated that the appreciation of energy role requires the consideration of relevant information on three main factors:
i) the contribution of the energy sector compared to other non-energy sectors including agriculture and land use;
ii) the contribution of total greenhouse gases (GHGs) taking into account the short-lived climate forcers (e.g. methane), the carbon dioxide removal potential and geo-engineering in driving the radiative forcing ;
iii) the relation between radiative forcing and temperature change.
The large uncertainties characterizing each of these factors have been indicated, bringing forward the need to improve knowledge in order to reduce these uncertainties.
One main highlighted point in the discussion is that energy systems have already observed a big transformation and achieved substantial progress in terms of GHGs mitigation. However, a deep decarbonisation, in line with the Paris Agreement objective, requires to consider non-energy-related sources of emissions, where huge efforts still need to be made.
The discussion focused on the long-term options for decarbonisation and the right policies that allow accelerating their deployment. One of the main messages stemming from the discussion is that many of the options to achieve deep decarbonisation still face large economic and technical barriers. For instance, electrification of final energy consuming sectors associated with renewables generation is cited as an important decarbonisation alternative. However, the cost of deploying and integrating a large share of renewables as well as the lower efficiency of these sources remain big issues to be overcome in the future.
Moreover, Mr. Peter Hartley from Rice University pointed out that there is a margin to improve policy design and to predict the potential of applying technology-neutral policies, which encourages picking up the right alternatives to achieve GHGs emission reduction. Giving the right signal regarding the cost and efficiency of clean energy solutions is one key instrument that enables to improve the effectiveness of carbon mitigation policies.