Towards a green economy 2 Challenges and opportunities
The global community and national governments are faced with four major challenges with respect to the energy sector: 1) concerns about energy security; 2) combating climate change; 3) reducing pollution and public-health hazards; and 4) addressing energy poverty. Greening the energy sector, including by substantially increasing investment in renewable energy, provides an opportunity to make a significant contribution to addressing these challenges.
2.1 Energy security
Increasing energy demand together with rising energy prices raise concerns about energy security, a topic which covers a range of issues but primarily is associated with the reliability and affordability of national energy supply. Such concerns are particularly relevant for low- income countries, but also for emerging and developed economies, where a relatively high dependence on a limited range of suppliers can mean higher risks to the security of national energy supply due to geo-political and other developments. Risks
to national energy
security can also carry downwards to impinge on energy security at local levels.
The IEA’s Reference Scenario, the trends of which are depicted in Tables 1 and 2, represent a baseline of how global energy markets would evolve without policy changes (IEA 2009a). In the scenario, oil importing countries (especially developing countries and emerging economies) are expected to become increasingly dependent on OPEC countries for oil. While total non- OPEC output is expected to remain about constant until 2030, production in OPEC countries is projected to increase, especially in the Middle East. OPEC’s share in the world oil market consequently rises from 44 per cent in 2008 to 52 per cent in 2030, above its historical peak in 1973. For natural gas, increases in exports are mainly projected to come from Russia, Iran and Qatar, which would increase the world economy’s energy dependency on these countries (IEA 2009a).
The increase in oil prices since 2002 has increased pressure on the balance of payments of developing countries (Figure 1). To protect consumers from increased fossil-fuel prices, some countries have increased their fuel subsidies putting additional strain on government budgets, and underpinning the demand for fossil fuel imports. Oil accounts for 10 to 15 per cent of total imports for oil- importing African countries and absorbs over 30 per cent of their export revenue on average
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(UNCTAD 2006, ESMAP 2008a). Some African countries, including Kenya and Senegal, devote more than half of their export earnings to energy imports, while India spends 45 per cent. Investing in renewable sources that are available locally – in many cases abundantly – could enhance energy security for such countries (GNESD 2010). Energy security would then be influenced more by access to renewable technologies, including both their affordability as well as the capacity to adapt and deploy those technologies. Diversifying the energy matrix thus presents both a considerable challenge and opportunity for oil importing countries.
2.2 Climate change
The Intergovernmental Panel on Climate Change’s (IPCC) fourth assessment report (IPCC 2007) underscored the importance of mitigating future human-induced climate change – mostly driven by the combustion of fossil fuels – and adapting to the changes that occur. Estimates of the damages of climate change and costs of mitigation and adaptation vary widely. Substantial damages will occur even with a rapid greening of the energy system, but will be much higher if no action is taken. The annual global costs of adapting to climate change have been estimated by the United Nations Framework on Climate Change Convention (UNFCCC 2009) to be at least US$ 49 - US$ 171 billion by 20304
. About half of these costs will
be borne by developing countries. Moreover, climate change is likely to worsen inequality because its impacts are unevenly distributed over space and time and disproportionately affect the poor (IPCC 2007).
The Intergovernmental Panel on Climate Change (2007) and International Energy Agency (IEA) (2008c) estimate that in order to limit the rise of average global temperature to 2 degrees Celsius, the concentration of GHGs should not exceed 450 parts per million (ppm) CO2
-eq. This translates to a peak of global emissions in
2015 and at least a 50 per cent cut in global emissions by 2050, compared with 2005. In 2009, the G8 committed to an 80 per cent cut in their emissions by 2050 in order to contribute to a global 50 per cent cut by 2050,
4. This estimate is very rough, approximate and conservative; it does not include key sectors of the economy such as energy, manufacturing, retailing, mining, and tourism, nor the impacts on ecosystems and the goods and services they provide. Other studies that take into account additional direct and indirect impact of climate change related to water, health, infrastructure, coastal zones, ecosystems, etc., have assessed that cost of adaptation to be 2-3 times greater than that put forward by the UNFCCC (IIED 2009). In general, adaptation costs should only be interpreted as lower-bound estimates of the possible economic impacts of climate change (see also Stern 2006).