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Columbia Energy Exchange

World Energy Outlook 2022: An Insider’s Look

November 29, 2022

Transcript

Jason Bordoff [00:00:04] The outlook for the global energy system looks much different than it did this time last year. A brutal war in Ukraine, along with persistent under-investment in energy supply, has precipitated a global affordability crisis. The U.S. has passed into law the biggest investment in the energy transition in its history, and the window to act on climate already narrowed last year has become even narrower. What has been the impact of these seismic changes on the energy system and on those who rely upon it? And how have they changed the outlook for the global clean energy transition? The World Energy Outlook tries to answer these questions. On October 27th, the International Energy Agency published the 2022 edition of its flagship report, which examined the state of the global energy system and sets out several scenarios for the future. In short, it tries to answer the questions Where in the energy transition are we? Where might we be headed? And in particular, will the current energy crisis accelerate or decelerate the clean energy transition? This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I’m Jason Bordoff. Today on the show, Laura Cozzi. Laura is the chief energy modeler at the International Energy Agency. She also serves as head of the Demand Outlook Division and is responsible for producing the annual World Energy Outlook. Laura has been with the IEA for over 20 years and has coauthored multiple editions of the Outlook. I talked with Laura about this year’s outlook and the various scenarios outlined in the report. We discussed fossil fuel consumption in the upcoming decade and investment in clean energy technologies across the globe. In addition to many other topics, I hope you enjoy the conversation. Laura Cozzi, thanks for making time to join us on Columbia Energy Exchange. It’s great to see you again. 

Laura Cozzi [00:02:10] Thank you very much, Jason. It’s a pleasure to join you. 

Jason Bordoff [00:02:13] Really delighted to be able to have this conversation to unpack the hundreds of pages of just released analysis for energy geeks like us. The release of the World Energy Outlook, as is always exciting because it helps give a snapshot on where we are and more importantly, where we’re headed. And so for people who may not have digested all 500 or however many pages it is, you’re that you’re in charge of the team, that puts the World energy outlook together for the International Energy Agency, how that is done, the different scenarios that are used, that’s that’s changed a bit in the last couple of years. I want to talk about that. But just start us off by sort of saying, from your standpoint, having done this for quite a while now, what is most important for people to know from the new outlook that has come out of the IEA about where we are and where we’re headed in the in world energy? 

Laura Cozzi [00:03:05] Thank you, Jason. Is I mean, we are all living in and current credit worthiness see around us that the situation is particularly difficult. I’ve been working in India with an agile team for many, many years and probably never this year has been difficult to actually understand the different signals that you’re reading from from energy markets. So when we met at the beginning of the year, just after the board adopted with the executive director and the team called, really we we told ourself that is one key question we would like to answer, which is, is the current situation accelerating or slowing down the clean energy transition? And of course, we are hearing more and more countries needing to use coal in Europe to make sure the lights are on. We are hearing in Asia more and more countries, countries interest in building new coal fired power plants. So there are indications that actually what’s happening, the energy security concerns at the energy prices are slowing down. What we had put on track for some some years. And actually the good news is what we find is that even in this scenario, which just uses the current policy settings, we are seeing a significant acceleration of clean energy investments throughout this decade. The reason being that clearly in Europe, through the reparative efforts, but also in the United States, the incredibly important inflation reduction act in Japan, the green transformation, they are all pointing, after all, into an acceleration of clean energy being solar, being a nuclear being wind. So in a way, we are seeing, yes, a blip in coal use this year. But fundamentally, these were the energy outlook cases that we are accelerating towards clean energy investments. 

Jason Bordoff [00:05:00] And the that’s encouraging finding. I think this is the first outlook ever. Tell me if I’m right, in which the use of fossil fuels peaks in the outlook in in all scenarios, not just the ones that are hopeful and optimistic, we might get to our net zero goals or announce pledges. But even in the current stated policies, is that right? 

Laura Cozzi [00:05:20] You’re completely right, Jason, And I think that the main difference compared to previous outlooks is not so much about coal. Saw coal was declining. Also in previous outlooks, oil was seeing coming to a peak towards the 2030s. But the big difference is really natural gas and really it’s it’s the current situation that is bringing about a very significant change is in the in the natural gas outlook in particular you may remember Jason that you you have been hosting I would executive director of Colombia for many years. A decade ago more or less we had a special report that was looking into the question, are we entering a golden age of gas? And we had very it for some people very bullish that projections on gas demand. And when we look at what has actually materialized and the growth that we were anticipating back then of this golden age of gas actually happened. So we had a decade. We are just coming out of the decade of very, very strong natural gas growth. Now, looking forward, the situation changes pretty dramatically this decade. We are only expecting to see a 5% growth in natural gas demand. And this is to complete to two different trends advanced economies. Europe in the first place are going to see a decline in natural gas use and clearly driven by the corona situation, but is also a continuation of trends that you’ve seen over the past five or six years where natural gas is being pushed out by the power sector thanks to cheaper and cheaper renewables. But this is happening also in in other. We are expecting this to happen in the United States as well, with the Usra bringing in levels of cost for solar and wind, really, really a chip at chip level. So it’s our expectation is that the gas demand in the power sector is drying up in advanced economies and importantly for emerging economies, thinking of making an investment in a natural gas plant today is so expensive and so risky that they are basically delaying those. So the combination of those things brings to a very different growth in the in the gas outlook. 

Jason Bordoff [00:07:43] Yeah, I wanted to come to the role of gas, but. But since you brought it up, maybe we’ll just start there and I’ll come back to a couple of things you mentioned about the acceleration in policy that’s being triggered by this crisis. And you talked about that kind of well-known report, I think it was 2011, about whether we’re entering a golden age of gas. And it sounds like you’re saying if there was one, it’s behind us looking, looking forward, gas is not going won’t play the role of transition fuel as much as some people may have expected. You also just came out with an important report during the climate meetings in Egypt about about the role of coal globally and how significant coal remains and how difficult it is to displace. So, you know, some people listening may be asking, well, is it a good thing or a bad thing that we don’t see the same kind of outlook for natural gas because gas can play a role in displacing coal. Of course, gas can also have substitutes that are zero carbon like like nuclear or renewable energy. So talk about the dynamic between those things and where do you see things going in the outlook? If you’re if you’re more or less more pessimistic about the outlook or see see, see less of a less of a rosy picture for people who are interested in natural gas from the standpoint of of total emissions and what the substitutes are, is that a good thing or a bad thing for climate? 

Laura Cozzi [00:09:07] So overall, I would say that the the emissions that the emissions profile that we’re seeing even in the in the stated policy scenario is a bit higher through this decade that we were anticipating last year. Exactly. For what you just explained, Jason, that some of the displacement, displacement of gas to call that we would have been expecting in emerging countries, especially in Asia, we did not occur. However, we are also seeing this acceleration of clean energy technologies that I mentioned earlier, and this brings us in the 2030s in a bit of a better situation vis a vis technology learning. So we can accelerate further, further after that. So it really depends the time frame that you are looking at. You you, as you mentioned, the coal report. I think this remains and it has been for several years, but it remains for us really a major, major concern. We have been looking at the basically plant by plant not only for the electricity sector, but also for for steel and cement that are major use it off of coal. And when we look at the current existing plans, if they were to continue to operate, as we have been doing up to now by themselves, they would eat up the remaining budget to 1.5 degrees. So this is really a probably the largest imperative today if we want to reach our global climate goals. 

Jason Bordoff [00:10:40] Yeah, that I think is important because we’re still building new coal plants. But even if that never happened again and we just operate the existing fleet to the end of its natural, normal economic life, you’re saying that alone uses up the carbon budget and then you’re just talking about coal, you’re not talking about other fuels that emit as well. So I guess that’s why some of these jet peas, the just energy transition partnerships or other efforts to mobilize capital, as Indonesia announced a few days ago it might do to retire coal plants earlier than they normally would, I suspect are pretty important from your standpoint. 

Laura Cozzi [00:11:16] But they are they are absolutely, absolutely, absolutely central. So we were actually very happy that we worked with the Indonesian government starting from the end of last year to develop with them a net zero roadmap that was really taking into account their their pledge that was net zero by 2060. We work very closely with them and our executive director was at the G20 and energy ministers meeting at the beginning of September, signed with the Indonesian Energy Minister, started a joint vision for how to reach these these the net zero by 2060. What is important in the GDP is that basically brings forward the date of a peak in emissions in the power sector by around for Indonesia by around seven years. And it does so acknowledging that there are real difficulties in countries like Indonesia for us, the most exposed countries in terms of coal transitions in the world. And and those difficulties are multiple. They are the concern, the fact that they have basically take off pay contract in in the coal electricity generation, that the renewables pipeline is not there. So this 20 billion is absolutely critical and essential. So really kudos to the U.S. and Japan that they were leading the the the partnership to bring this this amount of funding about this is for us really a bit of a milestone. And we hope that this is going to be reproduced for many, many other countries. 

Jason Bordoff [00:12:51] There are so many topics in the week and things I want to get to. But just to close the loop on your comments on natural gas, and do I remember correctly that I think you say in the outlook that the difference between what the outlook had been for gas and what you see it as now about a quarter of that difference may be made up by more coal rather than gas, and that would be negative from an emissions standpoint. But but three quarters is efficiency or moving to cleaner zero carbon fuels, is that right? 

Laura Cozzi [00:13:21] Yeah, completely, completely correct. Maybe one thing before we want to move away from the natural gas issue, another important point is the difference between the demand trend and the LNG trend. So we are seeing a divergence there whereby gas demand is growing modestly 5%. But LNG trade, especially this decade, is going to grow in a significant manner, 25% or more. And this clearly some of it is to meet increasing European demand as a Russian pipeline needs to be to be substituted and on the other hand, the continuation of demand growth in Asia, both of them really at the same time bringing continuous demand for liquefied natural gas. 

Jason Bordoff [00:14:12] Let me just ask you about as I said, I wanted to move on, but I’m staying on gas for a moment because there’s the the the ability for substitutes. When you look at renewables or maybe coal, obviously we’re talking about the power sector, but the majority of gas around the world is not used in power. It’s used in industry and in heating things where substitutes maybe less are less available today or take time to deploy like electric heat pumps into every home in Europe. How do you where do you see the displacement of gas coming? Is it all in power or do you see it in other sectors. 

Laura Cozzi [00:14:46] Too is mostly really in the power sector and. To a lesser extent in heating in the building sector. So clearly, you mentioned heat pumps. We are seeing record level of deployment for heat pumps in Europe at the beginning of 2022. But also the numbers that we are seeing in other markets, these include certain parts of of China and Japan themselves. It’s they’re reaching record high levels. However, what makes the difference in them in the gas outlook for what concerns the heating in Europe? Certainly we are seeing what we what is called the renovation wave. So really buildings efficiency and retrofits are starting to kick in and make a difference. Clearly, with those prices, those are investment that do make sense. And many European countries have put forward the through the European Green Deal subsidies to help families to actually do those retrofits. 

Jason Bordoff [00:15:47] And does the the outlook for gas, which I assume is driven in part in your modeling by higher prices, the loss of Russian gas to Europe, the need to find replacements, does it assume that Russian gas is sort of gone forever? And would the possibility may seem hard, hard to believe today, but is at least a question about what the future role of Russian gas will be. How dependent is the outlook on the assumption that Russian gas is never flowing to Europe again? 

Laura Cozzi [00:16:20] But clearly, this is a this is a critical assumption. We are using this throughout all of our of our scenarios. It’s for us, we are seeing it is a is a no turning point. I think what’s interesting to highlight here is that there’s a lot of discussion of Russia finding new export routes in particular towards Asia, in particular to China. But it’s not as simple as it as it may seem when you look at volumes, pipe volumes through the power of Siberia. And the existing one and the one that could be then expanded. Well, China does not become as big as Europe in terms of potential export markets. And this basically leads to to the following. Over the period to 2030, in the current policy setting, our expectation is that Russia comes out with a really diminished role in terms of oil and gas exports and losing over $1,000,000,000,000 through to decade. 

Jason Bordoff [00:17:31] And how does your the view you that the IEA has of gas? I asked how it plays out in different sectors like electricity, heating industry. How does it play out in different regions? We’re talking while the cop is going on in Egypt. I was there last week. This is the African cop. There is much greater focus on emerging markets and the developing world and a growing sense of resentment from leaders in some of those parts of the world that when Europe is in crisis, people rush to build LNG infrastructure and send Europe more gas. But we can’t have any energy. That’s the perspective of some and including, you know, multilateral development institutions saying we won’t finance gas projects in the developing world. Is is what you just described a view from the IEA that actually. Countries, lower income countries that believe they can’t develop without gas are wrong. And in fact, we don’t need to be investing more to meet energy to meet the energy needs of the developing world. Does gas need to play a role in the way you see the outlook? Or in fact, we can do that without gas? 

Laura Cozzi [00:18:37] So we have been analyzing and following what’s happening in Africa for for many, many years. And I think I hear maybe a couple of of important data points that we have in the outlook. First, we have been talking a lot, certainly in Europe, about the impact of this crisis on European families and industries, etc.. But the truth is that while many European countries had the ability to shelter consumers, putting in place hundreds of billions of euros at all to cushion the price increase, we have been seeing similar price increases in the developing world, in particular in Africa and in those countries. There’s simply no liquidity to do to do so. So one for me, shocking number in in this year outlook is that for the first time in decades that we are tracking energy access is the first year that we are seeing an increase in the number of people without access to electricity. And simply this is really created by the current situation, this first global energy crisis, now 75 million. 

Jason Bordoff [00:19:42] Right? 

Laura Cozzi [00:19:43] Exactly. Without access, simply because they are not able to to pay and the countries are not able to shelter the consumers. Now, for what concerns a gas in Africa, I would analysis shows if you look at the power sector, then it’s true, absolutely true that in most countries in Africa, the cheapest solution to continue to electrify is renewables, is solar, in some cases is hydro, some places geothermal. The resources are there, but is also very clear in our analysis that natural gas is needed for domestic reasons on a number of issues. First first is fertilizer. So just simply for food security and making sure that the billions of people living in Africa’s natural gas need that they’re number one. Number two, desalination. And number three, Africa is building 75 new million homes every year. You need the cement to to build these homes. So you need the natural gas to build. So in our scenarios, while renewables have a much larger share of natural gas, is are too. Now, the question is that is is being floating at cop and before cop, even G20. What happens if Africa burns all the new gas resources that they found recently? You know up to now the. Share of CO2 emissions that Africa put in terms of cumulative emissions in the planet up to today is 3%. And if we were to burn all of those resources, it would go from 3 to 3.5%. So this is nothing. 

Jason Bordoff [00:21:22] All of the gas resources that Africa has domestically. Is that what you’re. 

Laura Cozzi [00:21:26] Yes, exactly. So this is not what makes or break the ability of the world to reach 1.5 degrees. 

Jason Bordoff [00:21:33] Yeah. And what about you mentioned you’re talking about Africa, but also just how to think about large growing economies, South Asia, India, Pakistan, Bangladesh, also parts of the world where renewables are very cheap and yet there’s interest in investing more in natural gas. How how should one think about that? Who’s concerned about meeting energy needs affordably, but also our climate goals? 

Laura Cozzi [00:21:58] Yeah, so we are still still seeing gas get natural gas demand growing in those countries, especially driven by industrial uses. And this is the this is certainly what is emerging from from our from our outlook. When you look at the industrial energy needs and the need for decarbonization, it’s clear that a very few of the technologies are are mature. We normally say this is a number that you’ve heard a lot. 50% of the technologies to reach net zero. I’m not yet on the market, but if you look at industry, the share is even larger is over 70%. And clearly here we do see a role for advanced economies to move to more first. So this next generation of all the investment that is happening and occurring in emerging economies. Our on on industrial facilities is going to be most likely fossil based and and most likely natural gas based. 

Jason Bordoff [00:23:07] And when you say most likely fossil based or you’re telling me what the outlook is for gas in Africa and South Asia. Just help me understand what scenario you are looking at. You have three. One is where the world is headed today based on policies on the books. Tell me if I’m getting these right. Another is the pledges countries have made. And then, of course, one would be what would it take to get to net zero by 2050? So when you’re describing in the last couple of minutes, here’s where things are headed. Are you talking about based on current policy And is that is the takeaway from that? The world would look different if we were on track for our net zero goals and we need to account somehow for the difference between those things. 

Laura Cozzi [00:23:44] Yeah, you’re completely right. So what I was describing is the world. In the current policy settings, there is still a gap between what the current current policy setting is and what countries actually have pledged in Glasgow and some of the countries even after Glasgow, through this, through the scope and the outlook for natural gas is not necessarily the one that would be much difference. We are still seeing in this in this announced pledges scenario and a of gas going in through the middle of this of this of this decade. So I think that the fuel fault for which the difference are the most marked across scenarios is really is really coal. 

Jason Bordoff [00:24:24] And this kind of takes me to a question about how to think about the gap between ambition and reality, where we are today and where we want to be for pledges and certainly for goals like net zero by 2050. So you’re again describing where the world is headed. The kind of investments we would would see will need to see in some fossil fuel forms of energy like natural gas or even coal. But that’s where the world is headed today. That’s not where we want to be. Of course, last year, the IEA had a very highly publicized report about what it would take to get to net zero by 2050. And a headline from that was No new investment in fossil fuel supply would would be needed. You identify in this report, I think in a more more detailed way what is needed both to meet where the world is headed, but also where we want the world to be. And then some of the risks if we don’t synchronize those things correctly. And so as one, if you could talk a little bit about that and how to think about in a normative sense what the world should be doing today, given that we’re not on track for those goals. You’re talking about investments that are needed. But what I hear you saying is you’re talking about investments that may be needed but actually hopefully will not be needed in the future. If we get on track for those goals, that assets will be will be built, may need to be built, but we actually hope they might be retired earlier than would normally be the case or be stranded to use to use that term. Is that the right way to think about where we are today, where we’re headed? What is needed to supply the world’s? Energy needs, but how to not lose the ability to get on track and hopefully accelerate the ability to get on track for our climate goals. 

Laura Cozzi [00:26:12] It’s it’s very clear that we are living in a moment where there is an incredible tension between meeting climate goals and energy security needs. And this is what we are really living on on a daily basis. On a daily basis now, maybe couple of of of of numbers from from the most recent from the most recent outlook and today. So if you talk about 2022, the ratio between investment in fossil fuels and energy technologies is 1 to 1.5. And this ratio, if we were in a world that is fully compatible with meeting the net zero by 2050, pledge in 2030 should be a ratio that is 1 to 9. Now, are we on track to making this to changes ratio and so, so fast and so quickly? But there are there are there are reasons to to doubt that we are going to be able to ramp up source so so quickly. Now if ever of course obsessed world we want to meet the global energy needs. If we are not able to ramp up to the clean energy path fast enough, then it will mean if we don’t want to go to another shortage that some investment in new fossil fuel will will be needed. But of course this has implications. And the ones that you mentioned, Jason, first, that this will mean that we are jeopardizing meeting our all our global climate goals and or and they probably both but true at the same time is that actually those investments from a market perspective and a certain point in time will not make sense anymore. So we are really living through the bumpy part of the transitions nowadays. 

Jason Bordoff [00:28:06] So tell me if I have these right. I’m going to summarize what you just said. And so if you look at the question of how much we are should be investing in hydrocarbons versus clean energy, I’m looking at two quotes actually, I was preparing for this yesterday. Here is Airbus Fatih Birol quoted in the papers a few days ago. If governments are serious about the climate crisis, there can be no new investments in oil, gas and coal from now, from this year. And then the World Energy Outlook has this, quote, cutting investment in fossil fuels ahead of scaling up investment in clean energy pushes up prices but does not necessarily advance secure transitions. And one might read those two things and say, how are they consistent? And I take it what you just said is they they reveal the tension today, the gap between where we want to where we would need to be to meet to be serious about that climate, as Fatih said, to be on track for goals like net zero by 2050 and what is required to meet the world’s energy needs. Right now. We’re just underinvesting in energy across the board. I think the World energy outlook makes that clear. I think I have it right that last year investment in fossil fuel supply was roughly at the level one would think it should be if we were on track for net zero by 2050. But as you say, the problem is if we were on track for that sort of goal, clean energy spending would be many times higher than it is today. And so, as you said, the likelihood that we increase it from a1i think it was a ratio of 1 to 1.5 hydrocarbons to clean energy. And that’s a pretty staggering statistic that by 2030 it would need to be 1 to 9 to clean energy and energy efficiency. And if you think that might not happen and you want to make sure we keep energy affordable and don’t push up prices, that would then require some continued investment in fossil fuels. And the question is how to do that, but not have those assets run for decades in ways that mean we fall short of our goals. Am I describing the problem that we’re trying to solve correctly, and what are the solutions to it? 

Laura Cozzi [00:30:17] Yeah, no, you’re completely describing it in the in the right way. And I would I would point to to to this figure, which is, again, how quickly are clean energy investment growing And the expectation I mentioned earlier, we are expecting for the first time that investment in clean energy will reach 2 trillion by 2030. But if we were on track to meet net zero by 2050, this number would need to be 4 trillion. Now where we are seeing the large increase happening is most advanced economies is also China’s growing very much in terms of clean energy investment. But the parts of the world where energy needs are growing the most, which is emerging, emerging, emerging. Countries have been seeing over the past several years the amount of investment going in to clean energy being very much flat. And this is where we need to see the the huge the huge scale up. This is where I think copper is really where where, where things are important. That’s why the JCPOA that we just mentioned is is so is so crucial. So these are the places where we need to change what’s happening. And one of the key reasons not for us to really not talk quite enough at all is that currently if you’re building solar projects in emerging economies, you are. Paying the capital several times more than if you’re building the same solar projects in advanced economies. And this factor three, factor four, factor five. If you’re going Africa, you’re seeing even factor ten. This is really creating a tremendous break into the acceleration that we need. So concerted action to lower the average cost of capital for clean energy projects needs to be a number one priority for all multilateral development banks, all investors, and really all people that are concerned with climate change. 

Jason Bordoff [00:32:26] I guess one way to think about it, tell me if this is right, is the question of causality this whole again, again, the take the headline from from the net zero report, No new investment in fossil fuels. Tell me if I’m right. It is not the case that stopping investment in fossil fuels causes us to achieve our net zero goals. But it would be the case that no new investment in fossil fuels resulting from the fact that we had dramatically scared a scaled up clean energy investment and adopted other policies at a speed and scale that would be necessary to be on track for our climate goals. It would mean that no new investments are needed completely right? 

Laura Cozzi [00:33:08] So the causality I think was was explained in our net zero by 2050 scenario, the causality is the following. First, you tackle demand and you tackle demand. For example, for oil, you push very strongly electrification of cars, you push very strongly and mass transit you push push very strongly. In some cases behavioral change changes just to make some examples. And those tremendous push would result in a new oil demand trajectory that leads to a different investment requirements in in, you know, supply. Similarly for gas, similarly for coal. So we had actually flagged out not not one, even if certainly this has become the most important and the most quoted quoted methanol, our net zero analysis, we had actually 495 for them. Of them, we’re actually on on on the demand side of the story. So and there is really action that needs to happen on on the demand part of the story. And if you put those transactions in place, then the resulting thing is that you would not need investment in new oil and gas fields, any new coal fired power plants. 

Jason Bordoff [00:34:16] And what do you think that means for the way large financial institutions, governments, others should think about investing in fossil fuel infrastructure or projects? We obviously need to push on the accelerator as fast as we possibly can to scale clean energy deployment, to reduce demand, reduce emissions, as you said, and get and get as close as we can to that really staggering statistic you described of of a 1 to 9 ratio. But we might not get all the way there. There’s some uncertainty about how close we will get to that goal. And then if you want to make sure that you don’t push up energy prices and have underinvestment of the sort you warned about in this World Energy Outlook, some investment would then still be needed in hydrocarbon supply. We don’t want that investment to make it harder to get to our net zero goals. So what does that mean for how we should think about those investments? 

Laura Cozzi [00:35:11] There are certain type of of projects, especially when we were thinking through all these new gas supplies where needed that not need that steel in Europe to to fill the the Russian pipeline gas. And if you want I think this is the the characteristics of those projects are exactly the one that then will be needed to bridge this this this decade. And these are projects that are coming to market quickly that have very quick payback, big payback periods and are certainly not large new new developments. That is really we don’t see it in many of the scenarios, the space for large new oil and gas developments that would fit, that was fit. And the climate, the climate goals, however. Yeah, go. 

Jason Bordoff [00:36:00] Ahead. What are examples of things that come to market quickly and pay for themselves quickly? 

Laura Cozzi [00:36:05] So pay for the senses by people themselves quickly. And those are already existing oil and gas fields where you are making basically you’re making an additional well, you’re talking about shale. And when you’re talking about about gas, actually, I go back to something that you’re trying to to bring to the international attention for quite some time. This is the is methane emissions. So we have this this recent recent assessment that we have around 170 BCM that would be available to be brought back to markets, just making sure that this is basically methane that is not leaked or. Got lost. And this would really be a type of protest that fit this this bill. 

Jason Bordoff [00:36:54] Yeah. And one other thing you often hear is, well, if we’re going to invest in fossil fuel infrastructure, let’s make sure it’s transition ready. It can, you know, take hydrogen instead. Is that is that real or is that kind of bogus? And just stuff that people say to justify investment in fossil fuels infrastructure? 

Laura Cozzi [00:37:12] Right. Is it easier for a certain type of fossil fuel, fossil fuel projects? So you may be thinking about the certain type of LNG regasification terminals, but certainly certainly true for certain type of thinking about certain US projects. I wouldn’t say that is a full blown through. We know, you know, in all all cases. 

Jason Bordoff [00:37:41] I didn’t mean to completely focus the podcast on exactly this question of, of, of no new investment, but it is such an important takeaway and has gotten so much attention. I thought it was helpful to unpack and help people understand exactly how you and the IEA think. Think about it. One thing that you also spend a lot of time in this world energy outlook on sort of near and dear to my heart. As you know, if you’ve read anything I’ve been writing lately, you have it how to think about the process of transition. What it means for energy security is a messy transition, unavoidable. I think that’s one of the subheadings in the World Energy outlook and it’s one of the aspects is related to what we’ve been talking about, making sure that we synchronize the scale up of clean energy appropriately with the decline in hydrocarbon investments. But can you talk a little bit more about there’s a major focus in the world energy outlook on these ten principles for energy security. Talk about how at a moment when the world is once again largely because of Russia’s unjustified invasion of Ukraine, focused on energy security as well as climate security, how should we be thinking about energy security risks and opportunities in the current outlook? 

Laura Cozzi [00:38:55] So the way we are, we are we certainly have this entire chapter that is focusing on on energy security. Very clearly. It is front and center in in in this year’s outlook, maybe synthesizing it. And so we have we did have ten principles, but maybe we’re being here the three, three most important ones. And the first one is really going back to the synchronization of of the coexistence of of the two systems, because certainly this decade that we will see a coexistence, probably even for several more decades, we will see coexistence of fossil fuel and a fossil fuel system and a clean energy system. So how the two are expanded and and managed will really matter hugely so that the I go back to the 1 to 9 scale up in investment and how the interplay between the two is made is going to be absolutely critical. So this is certainly the first point to the second area we are highlighting in terms of of major security risks. That is the one I mentioned again a bit earlier and is the ability of the world to mobilize and the large amount of financing needed in emerging economies and in particular bringing down the weighted average cost of capital for for clean energy technologies. And the third, which you yourself, Jason, has written quite a lot about is them is the emerging new and new new energy security risks and the critical minerals being of being the one that is often mentioned as a as an important one. We are seeing in all in all scenarios a very strong increase in the in critical mineral demand that is needed throughout all the clean energy technologies from lithium to copper to nickel. All of those are currently very concentrated and we need to be extra careful of not going through a very large concentration. We we’re talking here about gas to Russia to another type of concentration. So we need to scale up in see the investment in also in those industrial minerals, while at the same time ensuring that the supply is is more diversified. So this for us is really something that we are working on very closely, not not only linked to the policy may make it autonomous, but also we have created working parties within the IAEA to to monitor, to monitor this these emerging energy security and risks. 

Jason Bordoff [00:41:35] Yeah. Can you talk a little more about the geopolitics of critical minerals? There’s a general sense in the US, maybe in Europe, that the fact that somewhere around. 90% of those minerals are refined and processed in China is a problem. I guess first, do you think that’s a problem? And if so, what should be done about it? 

Laura Cozzi [00:41:56] It’s I think anything that is very highly concentrated can be a problem and doesn’t necessarily have to be a problem, but can be a problem. So diversification is always considered the way to minimize risks in anything. Financially, also in energy, in energy supply. The same is true for for minerals. So this is exactly the way we are looking at it. So anything that is highly concentrated may create the initial bit for supply chains to be for for a number of other of other reasons. So this is true for a number of critical minerals. This is is true for for solar. We have basically 90% of the of of the critical parts of the solar supply chain that are concentrated in China with the current expansion plans. We are respecting these actually to rise to 95%. And clearly it’s it’s an indication that that supply chains are are at risk may be at risk. So diversifying will be will be a critical and critical issue here in just make a bit of an advert here in January. We’re coming out with the we the work that looks at the clean energy supply chains around the world and really looks at this very, very seriously as we think that this is something to be to be watched very closely. 

Jason Bordoff [00:43:21] Well, I don’t know if you can give us a preview on what that will show, but but I’m curious how how we do that. Is this a question just how people understand? Are there critical minerals everywhere? We just have to start mining them in different places, building those refining and processing capabilities. What does that mean for the role of government and policy? How do you think about how do we achieve those diversified supply chains? What’s going to get us there. 

Laura Cozzi [00:43:45] Is that the resources are depending on the minerals you’re talking about, but they are relatively relative distributed. So certainly making sure that that more, more mines are opened in many different places. This is good. You start you talked about that about different places for refining and recycling is is also being being brought about as as a key is a key topic. So starting thinking through early enough through recycling processes in in across different across different technologies and in some cases we have heard also some countries being interesting in in stockpiling similar to what we are doing for for for oil. So there are, there are a number of of actions that governments can take and and lead to to to more secure to a more secure situation. 

Jason Bordoff [00:44:43] And what I’m curious how you think how how those challenges will affect the. What you have built into this world energy Outlook, the assumptions about increased policy ambition, some of that driven by energy security concerns like Repower EU. So we have this reality today where you said there may be a negative hit to emissions. I think I saw on the news today, you know, Indian coal demand is up 10%, partly because we’re in an energy crisis and the cost of gas is so high. This is coming out a few days. We’re talking a few days before the podcast comes out. And you said, but that that’s a small short term thing compared to what really the impact of this crisis will be, which is much stronger policy ambition to move to clean energy. And and some of those policies are hard to implement, right? Repower EU sets, sets, sets targets for countries to increase dramatically the speed at which clean energy projects are permitted and can take years to permit clean energy projects now and it’s hard to do it quickly. You model the impacts of the Inflation Reduction Act, and I think in the World Energy Outlook find that electric vehicle sales in 2030 will be seven times higher than they are today. And we should remember to qualify for the tax credits, the battery in the car cannot have components that were refined or processed with minerals from China, and that’s hard to build those diversified supply chains. So can you talk about how much uncertainty there is about the policy outcomes that are baked into this world energy outlook? How worried should we be about that and what do we do about it? 

Laura Cozzi [00:46:25] I think all what you said this is, is is completely right in in Europe. We are we are seeing how difficult it may be actually scale up renewables due to electric vehicles and really hitting some of the real life real life challenges. And however, having said, this is also true that Europe this year had a record high level of deployment for for renewables. So we often talk about the problems. But this also is also true that at the same time, both solar and wind were where we are today, because I have, I think with high levels and now maybe I anticipate something we have been doing analysis for for next year. And we were finding that actually if things go well in terms of not having a very cold February or March, we may be fine for this year in terms of gas supplies. We are already starting to look ahead for for next year and look that we may have a 30% gap for for the 2023 winter. Why am I talking about this? Talking about this? Because if we if we were able to speed up the meeting even further and faster, as Germany has done, then we would be able Europe would be able to cut that 30 BCM gap by half. So this has to become a policy priority, certainly in Europe, but but elsewhere as well, too. Another finding of the outlook, which I think is relevant to what you just mentioned, Jason, is we actually looked at project pipelines for a number of clean energy technologies being solar batteries and electrolyzers. And what we find there is actually two for me important things. First, in all those cases, the announced project Pipe pipeline is much, much larger than what we would anticipate under current policy settings. In a few of those cases like solar, we are actually seeing project pipeline that is hitting the level that we would need in 2030 if you were complying with net zero by 2050 for batteries, we are at 84, 85% of that level for ELECTROLYZERS around 60, 65% of that level. Now, clearly not all of these will see these, but I think it shows that we are in an unprecedented moment in which industrial policy, energy security policies and climate policies are going into the same direction in many places, and that the business world is actually seeing it. And there is a unprecedented level of business confidence towards clean energy in many places in the world. 

Jason Bordoff [00:49:19] The I want to ask quick follow up on both of those points versus that gap so people understand, you know, we are having a somewhat mild winter in Europe in terms of temperatures and inventories were pretty full. And I think, as you said, there’s concern about next winter because we Europe may not be able to fill inventories as much given how low Russian gas supplies are right now. They might be even lower next year. And 30 BCM is a big gap. Just so for context, before the crisis, Europe was importing, I think around 150 BCM of Russian gas. So it’s a big number. I assume one of the takeaways from that should be tell me if I’m right. Not only scaling renewables faster, but there are so much we can do and should be doing on conservation demand reductions and energy efficiency. And it has struck me that that is not a larger part of the conversation about how to deal with this energy crisis, how to get to our net zero goals and that and that should be a more managed, orderly process than just letting high prices destroy industrial demand in Europe. Talk about the outlook for efficiency and what we can be doing that we’re not doing now. 

Laura Cozzi [00:50:29] Completely, completely right. So just to give a sense of perspective, just to talk about Europe for 111 minute, Ashley. In in Europe, the largest demand for gas comes from from heating, so heating, heating buildings. So if while we are certainly discussing and doing quite well in terms of deploying, deploying renewables faster and therefore taking out gas from the power sector, if we don’t tackle head on the largest elephant in the room, then we will continue to have an issue for for a few years ahead. And it’s very obvious that the consumers in Europe are reacting and they are reacting loading, lowering the thermostat, very obviously. So you have I don’t know if you want to call it, in some cases behavioral changes. In some other cases, as you mentioned, for the small and medium enterprises is really demand destruction because in some cases, they they went out of business. What can we do? We can certainly do renovations. And I have to say, several countries have really put in place through the European Green Deal significant grants for people and companies to start doing the renovations. The the bottleneck has not come from the grants, but actually from the number of of jobs of people that the installers. We didn’t have to certain point enough installers to continue to to push ahead quickly enough. And the second area that we are looking at very, very closely now is really heat pumps from the business side, huge, huge interest. And clearly economically, you know, it makes it makes a lot of sense. So those are really the two key areas, at least for Europe, where where we need to push ahead. 

Jason Bordoff [00:52:16] Can I you mentioned some of the exciting advances in technology, cost of electrolyzers, cost of solar. Talk about hydrogen. There is so much focus on hydrogen, both green, but particularly both blue, but particularly green hydrogen. Where is that headed? How much of a role does that need to play in achieving our climate goals? Is there too much excitement, too much hype around hydrogen? What do you see as the role it can and should play? 

Laura Cozzi [00:52:44] So in our net zero by 2050 scenario. So we see around 50% of energy needs being electric. So you can do those from electrifying good economy, but you have another 50% that you need. 

Jason Bordoff [00:52:59] And that compares to 20% today is the numbers. 

Laura Cozzi [00:53:02] So that. Exactly. But you have another 50% that needs to be done with something that is fuel based. So this is some other some other ways. So with cleaner fuels and hydrogen plays a part that plays a part that in our analysis is something that is around ten, 15%. And for certain, for certain sectors it plays, it plays an important role. It it’s not going to be the new oil. So sometimes we hear about the either way, in a way that is going to become so prominent in our society that you’re already talking about the hydrogen economy. Not I don’t think that this is the right way. The right way to look at it is it’s it is and will remain a very, very expensive fuel. So it will be used only in those applications where you really it will make economic sense. 

Jason Bordoff [00:53:47] What about nuclear power and what is what do you see as the outlook for that? As we take electricity from 20% to 50% of the energy mix. 

Laura Cozzi [00:53:55] We are seeing certainly nuclear. I mean, we are in circumstances today where countries that had to put very firm dates for closures. I’m thinking about Germany. I’m thinking about Belgium decided to extend the lifetime provided that there is safety and security. We are in a situation where we are seeing Japan having an important nuclear restart program. We are seeing Korea having decided to completely reverse their their view on on on nuclear and and starting several new reactors. And I’d say certainly in the US and Canada, not only interest for for the current generation but by the summer. So I think we are seeing now this being a really pivotal moment for for for nuclear nuclear energy. 

Jason Bordoff [00:54:47] We haven’t talked too much about transportation yet. The outlook has, as we said, it has the first time fossil fuel use is peaking. It has to be clear that doesn’t mean we’re anywhere close to on track for our climate goals. They it’s a peak and then a long plateau. It’s nowhere close to the decline that would be consistent with a net zero by 2050 or even announced pledges. Oil doesn’t even peak until 2035 and then it kind of plateaus. I assume that is driven by accelerated deployment of electric vehicles. But talk about the outlook for oil demand today and what’s going to cause that to move. How much of that is cars? And, you know, cars are, what, about 20 or 25% of oil demand? What do you see as impacting oil demand outside of passenger cars as well? 

Laura Cozzi [00:55:31] So first of all, we are in a situation where not all aviation demand is fully back to what it was pre-COVID. So 2022 is still having a bit of a of of demand that hasn’t come back to the pre-COVID COVID levels And through the outlook are seeing is that this part, this segment of of oil demand to grow and recover eventually at the peak of IT levels and then continue to grow to grow beyond that. As many of you have heard, the fact is saying many times, Asia has just started to fly and these continue continue to be true. We are seeing continued oil demand growth in petrochemicals and plastics. The area where we are seeing oil demand being dented is at the 20%. You mentioned these really passenger cars with the three largest markets today for car sales being the U.S., Europe and China, all the three with current policies being possibly on track for a third to 50% of cathay’s being being electric, the 50% being if the the the pledges are are met. So if the feet for 55 is for the full amount, if some of the new emission vehicles for for China are met if the inflation reduction at this pace and fully met. So a rather optimistic outlook for electric vehicles that is denting passenger car oil demand. 

Jason Bordoff [00:57:08] We talked about a related to electric cars of course is again critical minerals where all the the needed components will come from for a dramatic scale up in in batteries. And I just want to come back to this question of security of supply chains and everyone after the pandemic, many companies and governments are thinking differently about security of supply chains, both for reasons of energy security and also maybe politics and economic activity. Industrial policy is back in vogue. The Inflation Reduction Act was clearly cast as industrial policy and much. Of the requirements for the tax credits mean that you have to do the activity either in the U.S. or maybe North America or maybe free trade agreement countries. We meet a lot. Tell me if I’m right. We need a lot of trade in clean energy components. We just have to scale clean energy technology so quickly. So much of that today is made in China. You want to diversify that over time. But but I suspect a lot of it will still happen in China. Can you just talk about the scale of trade that’s needed in clean energy to get to our climate goals? And then when we see this this new this new push for friend shoring or diversifying supply chains, is that is that a tailwind or a headwind for the energy transition? 

Laura Cozzi [00:58:28] I want to answer this question going back to one of the key findings of our net zero by 2050 analysis of of last year, we had them. We’ve been talking a lot about what the what well, what are the key conditions to make this happen. But one that we highlighted very strongly and without which for us get into net zero by 2050 was not possible, was international collaboration and in particular on innovation for hard to abate sectors. So we had done these analysis very clearly showing that in the absence of international collaboration, that includes very clearly trade and you would delay by decades reaching reaching that zero goals. Of course, energy security and security in general remains a priority and things have to balance out at a certain point. But clearly, international collaboration needs to remain the main central. 

Jason Bordoff [00:59:24] I want to conclude with maybe what’s actually the most important topic, not the least important coming at the end of the conversation, but the need for a just transition. That means many different things for different communities. We talked a lot already about mining and we know often where mining is done and what kind of communities can be impacted by it. We talked about the developing world and the emerging markets and how to make sure we have a transition that is kind of just in meeting their needs for economic development. Talk about the developing world first and how you talked about how much capital we have to mobilize to invest in clean energy in emerging and developing economies. Just help us put some context around how big those numbers are and what’s going to what’s going to bring that about. 

Laura Cozzi [01:00:12] So we need to significantly increase the amount of investment in energy transition in in, in in emerging economies. But I think when when we talk about just transition, the way we call it is people centered transition. We are really talking about people. And I want to give one number that this is not from where the jobs are. What is the from the coal report that really struck me very much. There are currently 5 million coal miners in the world, plus another million that is working in the coal transport, the coal transport sector. And those are workers that are very concentrated. They are leaving in provinces that make a huge difference for their communities. And when we look at their wages, they are very often higher than the rest of the community. So they are really central to the life and livelihood of the people around them. And for those communities. And the number that really shock me is the following. When we looked at where those 5 million workers are with, we did this geospatial analysis and then we overlaid in which country in the world have just transition policies in place. And we found that only 44% of coal workers today live in countries with just sanitation policies in place. This, for me, is another critical jigsaw that is missing in the puzzle towards clean energy transitions. We need really to to put this as well as the financing piece, the technology space front and center. 

Jason Bordoff [01:01:49] That’s a really important point, not just as a matter of equity, fairness, justice, but just politics. Right. I mean, our my colleague here at Columbia, Catherine McKenna, former environment minister Canada, often says we’re just not going to build support for the transition unless you have really solid plans in place to help communities that may be dislocated by that transition. Think about what their future economic situation will be, and that is a pretty staggering number. So just to repeat it for people, 5 million coworkers globally and almost none are in places that have policies in place to help think about what kind of economy they transition to. Is that right? 

Laura Cozzi [01:02:25] Exactly right. Exactly right. 

Jason Bordoff [01:02:28] Laura Cozzi, thank you for making time to be with us. I know the World Energy Outlook is a really important document, generates some headlines that people capture. I am one of those who enjoys digging into the details of it, as you can tell, and always have questions when I do so. So thanks for taking the time to explain your important work to me and to all of our listeners. I appreciate it. 

Laura Cozzi [01:02:49] Thanks, Jason, for having me. Thank you. 

Jason Bordoff [01:02:56] Thank you again, Laura Cozzi. And thanks to all of you, our listeners, for joining us on this episode of Columbia Energy Exchange. The show is brought to you by the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs. The show’s hosted by me, Jason Bordoff, and by Bill Loveless. The show is produced by Aaron Hartig, Delvin Aboyeji, Stephen Lacy and Cecily Mesa Martinez from Post Script Media. Additional support from Lily Lee, James Glenn, Tom Morton Howe, Daniel Prop, Natalie Volk and Kyu Lee Greg Vill Franke engineered the show. For more information about the podcast or the Center on Global Energy Policy, visit us online at energypolicycolumbia.edu or follow us on social media at Columbia New Energy. And please, if you feel inclined, give us a rating on Apple Podcasts. It really helps us out. Thanks again for listening. We’ll see you next week.

War. Inflation. Supply shortfalls. The global energy system looks much different than a year ago, thanks to a confluence of disruptive forces for oil and natural gas. Ever-cheaper renewables, electric cars, and stronger climate policies are putting peak fossil fuel consumption in sight.

How will these competing factors play out in the coming decade and beyond?

This fall, the International Energy Agency (IEA) published the latest version of its flagship report, the World Energy Outlook (WEO). It examines the state of the global energy system and maps out a variety of decarbonization scenarios for the future.

This week host Jason Bordoff talks with Laura Cozzi. Laura is the chief energy modeler at the IEA . She also serves as the head of the demand outlook division, and is responsible for producing the annual World Energy Outlook. Laura has been with the IEA for more than 20 years and has co-authored multiple editions of the WEO.

Jason talks with Laura about this year’s analysis – and the various scenarios outlined in the report. They discuss the prospect for a peak in fossil fuel consumption, the impact of increased investments in clean energy, and the long-term impacts of today’s supply crisis.

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