David A. Morse Lecture With IEA Executive Director Fatih Birol
Dr. Fatih Birol has served as Executive Director of the International Energy Agency (IEA) since 2015. He has led the Agency in a comprehensive modernization program, making it the global hub for clean energy transitions and broadening its energy security mandate.
In this discussion, Fatih Birol shares his perspectives on the current state of global energy, focusing on the implications of Russia’s invasion of Ukraine on energy markets and alternate suppliers, including the United States, as well as prospects for limiting global warming, particularly through technology and innovation.
The David A. Morse Lecture was inaugurated in 1994 and supports an annual meeting with a distinguished speaker. It honors the memory of David A. Morse, an active Council on Foreign Relations member for nearly thirty years.
BORDOFF: Good afternoon, everyone. Thanks for being here. In perfect CFR style, we start exactly on time and we will end exactly on time, maybe even a minute or two early. I’m Jason Bordoff. I am the founding director of the Center on Global Energy Policy at Columbia University. Also co-lead the new Columbia Climate School. And really delighted to be presiding over today’s discussion.
Today’s meeting is CFR’s annual David A. Morse Lecture, which honors the memory of lawyer, public servant, and internationalist David Morse, an active Council on Foreign Relation(s) member for nearly thirty years. And the audience, of course, consists of Council members across the country who are joining us online as well as here in person in New York. And it’s really wonderful to be in person and see many friends, and start to have more of these conversations in person. We’ll have about thirty minutes of conversation just with me and Dr. Birol here on the stage, and then we’ll open it up to questions from the members, maybe go back and forth, one in the room one virtually, if there are virtual questions, before, again, concluding a few minutes before 1:30.
It’s really a pleasure to be here, not just because I value so much being a member of CFR, but especially because I value the work and the friendship and the relationship and, honestly, the mentorship that I’ve had with one of the most prominent voices in the global energy conversation, Dr. Fatih Birol. I’ve known Fatih for a long time. Since 2015, he has served as executive director of the International Energy Agency. And he has guided that organization through just an extraordinary and turbulent time. Huge swings in political parties, including in our own country, a pandemic, Russia’s invasion of Ukraine, a climate crisis, and an energy crisis. And we’re going to talk about both of those things.
And in the last few years in particular, I think, as the world has searched for answers to this upheaval in the energy system, Fatih has been a trusted voice for analysis for policy guidance and, with the war in Ukraine approaching its one-year mark and the outlook for energy markets highly uncertain—we’ll talk probably a little bit about kind of the February ban on refined products. So resurgence in Chinese oil demand, what’s happening in the oil and gas sector, but of course also what’s happening in clean energy. We just saw reported yesterday that investment in clean energy reached levels of the fossil fuel sector. And huge growth and momentum in putting more capital into clean energy, although maybe not enough. We’ll talk about that.
And all of that is being driven by the growing urgency of making faster progress on the energy transition and on climate change. So we are in a world now that has challenges with both energy security—that was the origin of the IEA. The IEA’s mission was to provide and ensure energy security coming out of the Arab oil embargo in the 1970s. And now climate security too. How do we deal with the climate crisis and make faster progress against those challenges? We’re seeing that each and every day. We were just talking a moment ago about Pakistan over the past year. Horrific flooding that has much of that country underwater, turbocharged by the impacts of climate change. And a country in an energy crisis with rolling blackouts, struggling to afford imports of gas, struggling to afford other fuels, even coal.
And as Fatih will remind us, I think we’re not spending nearly enough on accelerating the transition to a clean energy economy. So I can think of no one really better to help us understand this really dynamic, complex, and rapidly changing landscape of where we are now and where we’re headed in this multidecade, turbulent process of transition than Dr. Fatih Birol. Please join me in welcoming him to the Council on Foreign Relations. (Applause.)
I wanted to start, Fatih, we were both together in Switzerland a week and a half or so ago. And you did a lot of things in Davos of note. But one of the ones that struck me was you did a panel with Greta Thunberg and other youth climate activists. And that was an image I hadn’t expected to see. I don’t know if you had. But I was wondering if you could talk a little bit about that experience, what you talked about on the panel or before or after, where you agreed, and where you disagreed.
BIROL: Thank you very much, Jason. Also let me add my thanks to CFR. Once again, hosting us here with these distinguished colleges to discuss energy and climate issues. So, Jason, I think our climate crisis is so huge and so complex that it calls for building a grand coalition of governments, business leaders, civil society, and
others, who genuinely want to tackle the climate crisis. In those, I met CEOs of the largest coal companies of the world, government leaders, kings, I don’t know, many business leaders, executives.
And I thought to accept the invitation of Greta Thunberg is within the context of having a dialogue with the climate activists. And I thought we had a very good meeting before the panel and in the panel. There, of course, is always the case. There are differences. There are similarities. But I thought this dialogue and the underlying determination to keep the 1.5 degree target alive was important. It is the reason I had this—I accepted this invitation. And I thought it was a good talk.
BORDOFF: What did you agree about and what did you disagree about?
BIROL: I think we agreed that there is definitely—it is important fact that 1.5 degree is essential and need to be kept alive.
BORDOFF: This is the globally—the target of limiting temperature rise to 1.5 degrees Celsius by the end of the century.
BIROL: Global temperature—yeah, exactly. Exactly. As the scientists tell us, if we can keep the global temperature which is 1.5 degrees maximum increase, we could have a planet which is more or less like we have today. If it goes a bit higher, then we start to see trouble. So we had an agreement on that, the importance of keeping it alive. We had agreement of the need for accelerating clean energy transitions. We had agreement on the emphasis should be on the increasing clean energy investment in developing countries. And, indeed, there is a need, of course, to make the advanced economies be more generous here. So these are the main agreements.
As far as disagreements are concerned, I didn’t see—I don’t know if this is bad or not, Jason—I didn’t see many disagreements. I don’t know if this is good or bad. But I thought it was a very good discussion. And I believe, again, we should always be inclusive, have a dialogue with the youth, climate activists, millions of them around the world. It was along those lines that I accepted their invitation.
BORDOFF: I think many agree with the goal of 1.5 degrees Celsius, need to keep that alive. While we were in Davos, I think the IEA revised up its projections of oil demand growth for 2023. Not 1.7, but 1.9, coal use, gas use, oil use. They’re all going up, not down. So I also heard people say, yes, it’s a goal, but it’s out of reach now. Is that—is it a realistic goal anymore?
BIROL: I think I hear that a lot. And there is a growing calls from some business leaders, some political personalities, stubborn defenders of the existing energy system, some specific journalists coming together and saying that 1.5 degrees target is dead. So—and we should look for 2 degrees or another target. I think it is factually wrong and politically irresponsible. I am very clear here. Factually wrong because, you are right, the oil demand is increasing, but other things are increasing as well. The 2022, last year, addition of the new renewable capacity coming to the markets is huge, 25 percent increase from one year to another. In order to be in line with the net zero or 1.5 degrees target, renewables need to increase each year 25 percent. Bank on renewables.
Electric cars. 2019, only 3 percent of all the cars sold in the world were electric cars. And this year, it would be around 15 percent. And with the current policies, even if there is no acceleration with the current policies, in 2030, every second car sold in Europe, China, and the United States, the three largest car markets, will be electric car. Heat pumps, nuclear power, big come-back of nuclear power around the world. Europe, Japan, Korea, India, China, U.S. with the Inflation Reduction Act, Canada. It’s growing very strongly. So there are a lot of clean energy options, technologies growing.
And plus, this is important, even in 2030 the trajectory we have is not exactly in line with the 1.5 degree that we ourselves, IEA, has put together. If there was a slight overshoot after 2030, there is room that it can be still compensated. First, mitigation or net emission technologies, zero-emission technologies, such as direct air
capture and others. So therefore, once again, looking at the one or two numbers and saying that 1.5 degree target is dead is factually wrong and politically irresponsible. And the International Energy Agency will not allow this to be the main voice in the climate change debate.
BORDOFF: Help us understand what is necessary to achieve goals like that? I think I often hear optimism that we can achieve our climate goals from people who point to some of the things you just said. Look at how quickly renewables are growing. Look at how quickly EVs are growing. And it always struck me, two things can both be true, because the energy system is just so large, the numbers are so big. All of that growth can be true, and you’re nowhere close to meeting your climate goals. So just help put—you have a unique way of putting numbers around these things. Help us understand the scale and magnitude of this challenge.
BIROL: Yeah. It is extremely difficult, first of all. I should tell you, it’s extremely difficult because our energy system was based on fossil fuels years and years. I mean, the last four or five decades, the share of fossil fuels in our total energy use, global energy use, was always close to 80 percent—big, big, big time. And energy is—the energy infrastructure is—it moves, it changed rather slowly. It is not like the IT, the iPhone. You change the iPhone, or these smartphones, every, I don’t know, one year, two years, six months. But the energy is—energy sector is like a big tanker. To change the—to change direction takes some time. So it is not easy. It’s a very difficult one.
Now, but everything boils down, investments, where the investments go. Now, to make it very simple, 2022, last year, our numbers show this world, our entire budget of the energy world, everything—clean energy, dirty energy, this and the other. The entire energy world, when you look at it, the investment for fossil fuels were about $1 trillion U.S. And investments for clean energy was about $1.4 trillion U.S. Last year, 1.4 (trillion dollars) for all clean and 1 (trillion dollars) for fossil fuels. In order to be in line with our 1.5 degrees goal, this ratio in 2050 needs to be 1 (trillion dollars) for fossil fuels and 9 (trillion dollars) for clean energy. So from 1.5 to grow that much.
Is it possible? Now, there is no lack of capital. And there are many challenges. But if you ask me, what is the most important challenge, pick up one, I would say: Clean energy investments in developing countries, emerging countries. This is the most important one because—and there are many here, the leaders of the financial institutions—the cost of capital for a clean energy project in developing countries—for example, with a solar panel, if it is 3 percent in advanced economies it is 9 percent in developing countries. So three times higher. How are we going to de-risk the investments there? How are we to do cost of capital there? And I tell you, Jason, one, it may sound real complicated but I’ll try to explain very simply how important it is to bring the cost of capital down in the developing countries.
If we can bring cost of capital in developing countries by 2 percentage points, then amount of this money I mentioned to reach our 1.5 degrees target be already 20 precent be reduced that money. So just bringing the cost of capital percentage point down would take care of reducing the investment needs by 20 percent. And this is the job of governments providing risks—de-risk, to providing guarantees, international financial institutions. Some of them are based not from here, New York. So there is role for them to play, in my view. But this is the single-most important issue, how to accelerate clean energy investments in the emerging world.
BORDOFF: And what I heard when we were there together was concern about underinvestment today, underinvestment in clean energy—because we’re nowhere close to being on track for a ratio like one to nine rather than one to one and a half. And then also concern from some other quarters that we’re underinvesting in traditional energy supplies, like oil and gas, because we’re not on track to scale clean energy that much. You’re known for a lot of things, but one of the things that has been particularly headline-making in the last year and a half, two years, IEA came out with this landmark report on net zero emissions by 2050. And one of the findings from it was, if we were on track to get to a goal like net zero by 2050, we would not need to invest in new—not existing, but in new—oil and gas supplies.
And I wonder if you could talk a little bit about—it’s something that’s been widely discussed, sometimes, in my view, not totally understood, exactly what the finding was. And how does it connect to what you just said, which is even if that finding, you know, is right, it assumes that we’re going to get this dramatic increase in clean energy that is not easy to get. Hopefully we get it, but maybe we don’t get all the way there.
BIROL: Thank you. So first of all, I should say, energy is a very good thing. Energy makes our lives more productive, much easier. We can have light. We can have heat. We can have our industries working. We can go to work. We can go—so energy is a good thing. So energy’s good. Emissions are bad. So I want to make this clear, that there is—nobody can make a demagogy—demagogy is in English—a demagogy here. So what we say as the IEA, lots of energy should come. But this energy should be clean energy. So if we can put a lot of clean energy in the markets, in the societies, in the economies, then we can reach our 1.5 degrees target and, at the same time, we don’t have the problem of energy shortages, energy crisis, and others.
But if we are not able to do that, at the same time if there is no also oil and gas, then we have a crisis. So therefore, the point of departure here is to push the clean energy to solar, wind, electric cars, hydrogen, nuclear power. And to make it big, you push so that the world doesn’t need additional oil and gas exploration and others, and to—with the existing ones, oil and gas, increase the production there. And this is the key issue. The point of departure is bringing so much clean energy that you don’t need others.
Now, I want to also mention—you mentioned Russia’s invasion of Ukraine. This is, of course, a very important issue. But I see that some people want to use Russia’s invasion of Ukraine as an excuse for large-scale fossil fuel investments. If you today invest in a—I don’t know—in any country in a new oil field—I’m not talking about the shale, which is a very quick one. But the conventional one, the first oil or gas will come to the markets six, seven years of time. So it doesn’t provide the urgent, immediate answer to the lack of energy here and there. So just wanted to underline that nobody should imagine to use Russia’s invasion of Ukraine as an excuse for the wave of coal or whatever the large-scale fossil fuel investments.
BORDOFF: I mean, some of that is happening. Germany just raced—eight months to build LNG import terminals. I think in the U.S., more projects will get to final investment decision. Is that—is that a problem? Or is that not what should happen to make sure we have enough energy?
BIROL: There is—of course, there is a need for immediate response to the crisis. In Europe, we had decades and decades of overreliance on Russia. And we need to get the—keep the lights on. There are some immediate solutions there. But even those countries know that these are not long-lasting solutions to energy security. These are immediate solutions for a few years to come. And many of those gas projects are planned to be used to make hydrogen out of this.
BORDOFF: So let’s come to where we are in the energy world today, the energy sector. And you’ve said we’re in the first global energy crisis. Tell us what you meant by that. And then, where’s the outlook from here? I mean, I think people have said, largely because of warmer weather and a big rush to fill inventories, Europe’s avoided the worst. Does that mean things are going to be fine moving forward? What do you see, particularly in the oil and gas market?
BIROL: Now, 24th of February was the invasion of Ukraine by Russia. First of March, one week later, as you said, I made a—held a press conference and I said exactly: We are entering the first global energy crisis. Because our world has never, ever witnessed an energy crisis of this depth and of this complexity. In the past, we had oil crises, but now we have oil, natural gas, electricity. Why? It’s very simple. Because Russia was, as of 24th of February, number-one energy exporter of the world. We are talking about any country, one of the cornerstones if not the cornerstone of the global energy markets. Number one in oil exports. Number one natural gas exports. A major player in the coal markets, uranium, and others.
And this triggered the energy crisis. And it was a very big news for Europe. It’s a big lesson to learn for Europe, Jason. The International Energy Agency, we have said again and again many European countries, including the
big ones, that you have to diversify your energy supply. You cannot put all the eggs in one basket. One country, or one company, or one trade route, it is always risky. But now, we learned the lesson. And Europe is going through very difficult times. I mean, this winter we are—we seem to be off the hook, with the help of also the weather, I should say. But it’s a big lesson to be learned, and at a very high cost.
But I should also mention that the—I mean, we—all of us know, and read in the newspapers, the situation in Europe. But something is not very much appreciated. What about Russia? Now, yes, Europe was reliant on Russian oil and gas. But the opposite also was true. Europe was by far, by far, the largest client of Russia. Very good client. Because 75 percent of all the Russian gas exports went to Europe. And 55 percent of all the oil exports of Russia went to Europe. And there is nobody which can come close to that. And Europe is such a good client, gets the oil, gets the gas, puts the money exactly on time in the bank. You can find it in the bank. Doesn’t create any political problem, no geopolitical stories, very, very easy guy, the Europe.
Now? Russia lost it is by far the biggest client from one day to another. There are many businessmen and -women here. Ask them, you have a huge client, and you lose this client from one day to another, and you try to find other clients, which is not very easy. And energy is, as I said, you need infrastructure, you need contracts, you need—this is—this is—and our numbers show that the Russians just today, one year, the Russian oil and gas revenues declined by almost 30 percent. And it is just the beginning—just the beginning. Because—it is because of the price, and because of not being able to find new homes for oil and gas, mainly.
But also, more to come because Russia’s oil and gas fields are rather mature and geologically complex fields. And they need a lot of technology taking care of—oil and gas fields are like human beings. When they come to a certain age, they need some care. They need some injection of technology there. And all the big Western technologies, international oil and gas technology companies who gave Russia oil and gas a big boost in the past, have left the country. No investments, international investments. So when we look at the next few years to come, keeping the production even at a certain level will be a great challenge for Russia. So I just wanted to talk about this part of the—the other part of the coin, as you say. Not only Europe is suffering, but there is an issue with Russia as well.
BORDOFF: Even—and last question from me, and then we’ll open it up. So think about whether folks have a question to pose to Dr. Birol. But that point about Russia’s oil and gas revenue declined, even though for oil, at least, their exports haven’t fallen very much. They’re having to sell at a much lower price, because they have to find other places that want their oil. Talk about what that means for the outlook for oil markets. We’ve talked about a few things now with investments trends, demand is growing, but will supply grow as quickly?
Europe said we’re not going to buy Russian crude oil, and then starting in February Europe is not going to buy Russian refined products—gasoline and diesel—anymore either. There’s a lot of people who think we’re headed toward another price run-up because supply and demand have to match. And there’s not much extra capacity in the world. There’s a little bit in OPEC, but other than that, not too much. And shale’s not growing nearly at the rate it used to. So what do you see as the outlook there?
BIROL: Yeah. So this also has an excellent point. Now, in 2023 for the oil markets, we have a lot of uncertainties. I want to highlight two of them. One of them is Russia-related answer, as you rightly mentioned. The sanctions and the price cap means it is not sure how much Russian oil can still come to market, even at very discounted prices. And there is an important question mark there. And the revenues, as I just said, went down substantially, but exports are more or less the same. But I wouldn’t be surprised to see Russia’s oil production to decline this year. We expect towards the end of first quarter this year to decline close to one million barrels per day.
This is one uncertainty. The second uncertainty, which is very much underappreciated in the oil market discussion, is the question of China. Now, China in 2022—China’s oil and gas consumption, domestic China oil and gas consumption, declined for the first time since forty years. Never happened. Always increase, increase. Because of the COVID restrictions. Now China lifted those restrictions. It is—the demand is growing stronger.
And nobody knows how strong that demand will grow. Currently we think about half of the global demand growth will come from China, about 900,000 barrels per day. But this may be well higher if the Chinese rebound is stronger than it really is. And when I look at the—this morning, the jet fuel numbers in China, the latest numbers of last few days, they are really skyrocketing.
So the combination of very strong—possible very strong demand growth, the supply being not strong enough, may well mean that, especially second half of this year, we may see tightness in the markets, unless OPEC+ countries change their position. Whether or not they will be taking a position to comfort the markets or not, this is an important question mark. But as we all know, there is certain amount of spare production capacity—it’s not endless. And this may well mean that if they don’t move in the direction of comforting the markets, we may see upward pressure on the prices.
Which is, in my view, very disturbing when the global economy—especially in many countries around the world—is flirting with recession. And again, I will bring it to the world, to the developing countries. You hear a lot from Europe that we are in a difficult situation, a recession, and so on. But the countries who are suffering the most from the high energy prices are the developing countries, because the balance, their trade balance, is much, much weaker than that of Europe. And they also suffer on the food crisis, in addition to energy crisis. Inflation is going up. And they are much more vulnerable.
So when the colleagues from the OPEC+ governments come and discuss, they shouldn’t consider—maybe even if they don’t consider the European and other economies, they should mainly consider the Indias of this world, Africa, and all of these countries, in my view.
BORDOFF: So, at this time I want to invite members to join the conversation with their questions. A reminder, this meeting is on the record. We’ll take our first question from anyone here in New York. We’ll go here and then here. Yeah, please. There’s a microphone, sorry. And please keep it brief and in the form of a question.
Q: Thank you both so much for this enlightening conversation. Hunter McDonald. I’m a term member, formerly with Glencore.
Interested to hear your comments on the outlook for vehicle electrification outside of U.S., Europe, and China. Noting in particular, recently Akio Toyoda’s comments on not being completely bought in to electric vehicle adaptation for Toyota. And curious if you have any comments a well on hydrogen fuel cells and renewable diesel. Thanks.
BIROL: So the—I tell you, instead of giving you an answer with lots of data and so on, I give you an anecdote. Just a few weeks ago I organized a meeting with the top twenty car manufacturers of the world—the CEOs and the executives. I can tell you that eighteen out of twenty companies are putting electric car manufacturing as a number-one priority. And why they are doing this? Because they want to save the world, climate, environment? No. Because it is a direction. Nobody wants to be behind. And they want to be a part of it. And I believe it is—(inaudible)—industry. Markets, I mentioned, in the—China, U.S., and EU. We will see it in India. We will see it in Latin America. We will see it in Japan, everywhere. And of course, there will be also room for the fuel cell vehicles, hydrogen and so on. But the main driver will be electric cars.
Having said that, I want to make—perhaps, if I may—just one issue. The electric cars, they don’t use oil. And therefore, from an energy security point of view, they are—or, from oil security point of view it’s an important answer. But batteries. Today, 75 percent of the global battery manufacturing is one single country. And when I look at the trends, it doesn’t seem to be changing much. Inflation Reduction Act may be one of the areas which can—which could be a step in order to diversify it.
But I think we should look at entire supply chain. And in order to—or, having electric cars, to be an ideal solution, maybe I want too much, but the electricity should come from clean and secure energy sources. And the
supply chain, including batteries, should come from a diversified picture. Today we have a Russia and natural gas. Tomorrow it can be batteries and another country. So this diversification is the magic word for me.
BORDOFF: Thanks. I’m told we have one virtual question and then we’ll come to Nili Gilbert in the room, go back and forth. And if we keep the questions and the answer brief, we’ll get as many as possible.
OPERATOR: We will take our next question from Susan Purcell. Ms. Purcell, I think you muted yourself?
Q: OK. Can you hear me now?
OPERATOR: We can hear you now.
Q: OK, great. Thank you very much for a very informative talk.
But I have somewhat a different view. And I want to ask you just to respond to it. I’ll make it very brief. Green energy, I think, is a rather misleading term because actually a lot of pollution is involved in producing electric vehicles. The rare earth minerals are polluting. The electric charging stations ultimately trace it back, where is the energy coming from? Right now, it’s coal. I mean, it’s a fossil fuel. We still don’t know how to safely bury or get rid of the batteries.
And then the last thing, it’s a slightly different thing but just a few words, I think there’s a national security element that has not been addressed with regard to electric vehicles. I live in Miami. When there’s a hurricane, suppose we have to evacuate? Or in a tornado corridor? You can’t do it. You run right into a traffic jam in about twenty minutes. So I would like to know—yeah, that’s it. Basically, the question is what would be your response to these facts?
BORDOFF: Yeah. Life cycle issues with clean energy and reliability issues.
BIROL: Yeah. So, first of all, you are right. In some countries, electricity is coming from coal or other fossil fuel sources. And it is the decarbonization, or reducing the share of coal is critical, as I mention a few minutes ago here. Renewables and nuclear power, in my view, can play a very important role. In terms of the supply chain, I was just a few minutes ago mentioning, it is the diversification is key here for national security.
And it is the reason I believe the Inflation Reduction Act is a very good step in the right direction. And now Europeans, Indians, and others are taking similar steps, and so that the security is not an issue. Supply chain is completely diversified from the lithium, from the critical minerals, to the battery manufacturing. And I believe this is the way to go. If you are left to internal combustion engine cars, the current car models we have, we have many, many challenges years ahead. So I believe the future in terms of the transportation is electric.
BORDOFF: The question—Nili has a question.
Q: Thank you. Hi. I’m Nili Gilbert, the vice chairwoman of Carbon Direct. Thank you, Jason, and thank you so much, Mr. Birol, for being here. It’s an honor for us to have you.
I appreciate that you started the discussion with the risks to the 1.5 degree scenario. And I agree with you that as the risk of overshoot rises, that the importance of engineered carbon dioxide removal solutions rises. But as you know, the amount of investment and activity in this space is very low, even relative to a normal scenario. And as the risk of overshoot rises, that gap becomes wider. I also appreciate the focus that you put on clean fuels. When we look at the projected needs for green hydrogen and green ammonia in the IEA scenarios, again, the amount of supply and demand today is relatively low—very low—relative to where we need to go. And this also affects your cost projections. And so I wonder what you view as the key catalysts to unlock these critical technologies at the speed and scale that we need, especially as emissions, unfortunately, continue to rise. Thank you.
BORDOFF: And do you agree that they’re needed? There are some parts of the environmental movement that say we don’t need all of those hydrogen and carbon capture and carbon removal.
BIROL: Yeah. So I think the colleagues who don’t want to see carbon capture and storage or hydrogen, or even nuclear in many countries, as part of the solution are really underestimating the order of magnitude of the challenge we have. Everybody wants to push their favorite technology. Some people like solar. Some others wind. Some likes, I don’t know, the hydrogen. But this—the issue is not to boost our ego. The issue is to reduce the emissions. So therefore, it is important to see that we need all this clean energy technologies. And indeed, there may be an overshoot. I hope not, but there may be an overshoot. But here we need technologies very much, such as direct air capture, for example. I think it’s a very important technology.
And I, again, salute here the Department of Energy. They are putting a lot of emphasis, a lot of projects there. And the Inflation Reduction Act. Now we are at the beginning of it. The important thing is the overshoot, if we have overshoot in 2030, it should be as little as possible so that we have less work to do. But in addition to the renewables and the existing technologies, to push the clean energy technologies, there is a need for innovation for the technologies after 2030.
BORDOFF: We have a virtual question.
OPERATOR: We will take our next question from Welby Leaman.
Q: Thank you for this. It’s very helpful.
You mentioned briefly the food crisis. What interplay do you worry about between the energy crisis and the food crisis in the context of the green transition? You know, how sensitive is the agriculture sector? And especially in lesser developed countries to the potential for errors in energy policy as we transition?
BIROL: So we have seen the food prices increasing significantly in the previous five or six months, mainly because of the natural gas prices increasing. It’s an important input for the fertilizer industry. And I believe that the—except for the unsustainable biofuels productions, I don’t see that the clean energy transition will take any negative impact on the food security. So here, biofuels, bioenergy is an important part of, as I said, all the technologies we need. Bioenergy is one of them. But to make it in a sustainable manner, which many countries are doing, including Brazil, we don’t—we shouldn’t expect any negative impact of clean energy transition on the food security, food prices.
BORDOFF: I think there was—did you have a question? Yeah.
Q: Thank you. I’m Cynthia Roberts, a professor.
And my question is about weaponizing energy. And I’m wondering if—well, first of all, there’s an emerging debate whether Russia will be able to weaponize the refined fuels market, as there’s some scarcity in the market. And it’s supplied a lot of jet fuel and other refined energy to Europe, which has increased tremendously its supplies in the last three months in anticipation of this February deadline. But so that’s one part of the question. But in the larger sense, a year into this war, can you draw any conclusions about weaponizing energy in this sense? Does it benefit more the attackers or the defenders? On the one hand, there was a lot of skepticism about whether Europe could make it through, and good weather helped. But also, they were able to find alternative sources of supply. Do you—so that favors the defenders. In general, do you think there’s some larger lessons here or not? Thank you very much.
BIROL: Thank you for this question. So you are right. It is clear that Russia weaponized the energy. But it is not the first time. We have seen in the past some other countries the same. And when, Jason, people tell me, when I say renewable energy’s good, renewable energy is the energy of peace, people tell you, but renewable energy’s solar and wind. They are nature-bound. There is enough wind in the south? It is not predictable. And I
tell them, some of the oil and gas exporters are less predictable, to be honest with you, when you look at—when you look at their policies. So I think for Europe, it will not be easy.
Now, one example I’d give you, there are many examples. One example is the industrial sector. European economy is based on the—a heavy, energy-intensive industries, petrochemical, aluminum, steel, cement, and others. And they have been receiving their energy basically from Russia, and at very reasonable prices. Whatever the solution Europe has now, and we are working on that, it will not be the same cost. Costs will go up for energy. And the energy costs in these industries are a significant part of the overall cost if you want to have steel, or aluminum, or petrochemical.
Now, in my view, and this is my recently—the favored topic in Europe, is to come up with a master plan for a new industrial strategy. There are two pressures. One, as you rightly mentioned, the energy situation and the high cost. What do we do with this? And the second, Inflation Reduction Act is also putting pressure on European industry how to respond to that, because we are entering a new industrial age, an age of clean energy technology manufacturing. China is by far the leader. U.S. with the IRA wants to come and compete with China. And Europe, how is Europe going to position itself?
So for these two reasons, currently the high energy costs, the existing industries in Europe, plus for tomorrow’s industry, how to respond to China and the United States, in my view Europe has to come up with a new master plan to redesign according to its weaknesses and strengths a new industrial strategy. And this is one of the key topics that I discuss with the European government leaders, and the—in these six months in Europe, the European presidency is run by Sweden. And this is one of the topics that I am discussing with Swedish government, which is—will be a key priority for all EU twenty-seven countries. But thank you very much for underlining this important point.
BORDOFF: There’s a virtual question.
OPERATOR: We will take our next question from Ariel Cohen.
Q: Hello, Mr. Birol. It’s a pleasure to see you, as always. Can you hear me?
BIROL: Yes, I do. Thank you very much.
Q: And my question is in reference to Russian attacks on civilian infrastructure in Ukraine. Can your organization play a role to make attacks on civilian energy infrastructure, that cause deaths of thousands or tens of thousands of civilians in Ukraine, a sanctionable international offense? And how can such international behavior—can be sanctioned or punished? And a related issue with regards to Russian occupation of nuclear reactors, that creates a threat to the future of the nuclear industry, which is a major decarbonizing industry. What can your organization do, or other international organizations, to prevent Russia from occupying civilian nuclear reactors in Ukraine? Thank you very much.
BIROL: Thank you. Yes, Russia is attacking almost on a daily basis the infrastructure, the power plants, transmission distribution lines, and other critical energy infrastructure in Ukraine, in order to paralyze the economic and social life. And as the International Energy Agency, we are—of course, our work is limited to policy advice, analytical work. But we hope that the member countries of the International Energy Agency are doing their utmost in order to support the innocent people in Ukraine.
The current big challenge in the Ukrainian nuclear industry, and Russia’s occupation, is in addition to being a big threat to the humankind in the region, in Europe, and beyond, it is a big risk of—nuclear around the world is making a comeback. Because in case of—hopefully not—but in case of an undesired accident there, I think the nuclear comeback will be pushed back years and years. So therefore, we are supporting the work of the international institutions, such as the International Atomic Energy Agency, so that a peaceful solution can be found without any incident there.
BORDOFF: I’m going to get to as many as possible, but your hand went up quickly. So let me turn to you.
Q: Hey. Josh Goldman. I’m a term member. Thank you both very much for being here.
Maybe to build on the technology innovation question. One of the few bright spots over the last decade or so, both in the power and the electric vehicle space, has been how quickly technology has matured, costs have come down, deployment has accelerated. I think my sense is in most cases far faster than most forecasters had expected. So curious how you’re thinking about technology innovation in these forecasts, and maybe also how you’re thinking—how your methodology for building in those breakthroughs has evolved over time, as we’ve learned.
And maybe the second part of that question, from more of a policy and investment perspective, if you look across the spectrum of sort of stages of technology innovation and you think about the trillions or tens of trillions of dollars of investment that are going to be needed to get—you know, stay within 1.5 (degrees), where do you see the biggest gaps? Is it sort of basic science, R&D, OECD market deployment, or tech transfer to emerging markets? Where are we farthest away from the required investments?
BIROL: Yeah. So if we want to transform our energy sector to reach 1.5 degrees target, we have two jobs. One, a massive expansion of the clean technologies that we know today, which is commercial solar, wind, electric cars, nuclear, et cetera. But even if we make the maximum amount of them, it is not enough to reach our targets. There is 50 percent of the job needs to come from the technologies which are under development now, keyword innovation. Some of the technologies, different (high-level ?) applications—advanced—(inaudible)—technologies, small-model reactors, and others.
How they can be accelerated? Very simple. Putting more emphasis on R&D, giving more incentive to technology developers. Once again, I come to the—here the two countries. China is a big driver, giving a lot of subsidies here, pushing the new technologies. And it is the reason China is today clearly, clearly dominating the clean energy technology manufacturing. And the second is the Inflation Reduction Act. It will not only help in the United States, but also it will—it will also help the technology—cost of new energy technology will come down much faster because of the learning by doing, and also developing the technologies here in this country. So I believe the Inflation Reduction Act, the positive impacts on the global markets, global technology, is not yet very appreciated. But it’s going to play a very important role.
BORDOFF: I know there were more hands and I feel badly we couldn’t get to all of them, including from some friends who I was hoping we would get to. But we want to make sure that you’re all out of here on time and, Dr. Birol, you’re out of here on time. So I learned a lot in this lunch, as I have over many years from your friendship. So thank you for that. And thank you for being with all of us today at the Council on Foreign Relations. A reminder that this meeting is on the record. And the video will be posted on CFR’s website. Please join me in thanking Dr. Fatih Birol. (Applause.)
BIROL: May I also thank CFR for hosting me once again, and also to you for your able chairmanship. Also, let me take this opportunity, I understood that you’re center—Columbia Energy Center—is very soon celebrating its tenth anniversary.
BORDOFF: Ten years this year.
BIROL: Congratulations to you as well. Well done. Thank you.
BORDOFF: Thank you. Yeah, it’s a big milestone. Thanks.
BIROL: Thank you. (Applause.)