Executive Director, International Energy Agency
Senior Fellow for Energy and the Environment and Director of the Maurice R. Greenberg Center for Geoeconomic Studies
Fatih Birol discusses the latest edition of the IEA’s flagship World Energy Outlook publication.
LEVI: Good evening. Welcome to today’s Council on Foreign Relations meeting on the 2015 World Energy Outlook with Fatih Birol. I’m Michael Levi. I lead the Center for Geoeconomic Studies here at the Council on Foreign Relations. And it’s my pleasure to welcome you all, as well as CFR members around the country and the world participating in this meeting through livestream and teleconference. Before we get down to work, I want to remind you all that this meeting is on the record. And as I mentioned, it is being livestreamed.
Fatih tells me he thinks this is the 10th year that he’s been here for a discussion on the World Economic Outlook. I was not able to verify it definitively, but I told him he is responsible for statistics about everything related to energy, including this particular one. But we have a special difference this year to mark the 10th year. Fatih has previously been with us as the International Energy Agency’s chief economist. This year, he is with us as the IEA’s executive director, the man in charge. So first, Fatih, congratulations on that appointment. I know that many of us are very excited to see a leader, and an innovator, and such a thoughtful person in that position.
We’re going to talk today about the World Energy Outlook. We’re also going to talk about where the IEA is going to head in the future—at least, Fatih, if you get your way, where you want to lead it in the future. And then we’ll probably talk a little bit about the Paris Climate Summit, which is at the center of many energy discussions this week. But I want to start with the World Energy Outlook.
And rather than starting with the numbers, I want to start with a broader question. You publish this outlook every year that looks about 25 years into the future. This year, the outlook goes to 2040. We’ve seen so many surprises in the last few years. How do you do an outlook that reaches 25 years out into the future?
BIROL: First of all, once again, thank you very much for inviting me to CFR. It is always a great pleasure to come here. Even though it is 10 years in a row, it is not boring. So it is very good to come here, always with good questions, very warm welcome. Thank you very much for that, Michael.
Now, how do we make the outlook prepared for surprises? First of all, three things. One, we like to make our hands dirty with data. So we dive in the data and try to understand the data. Second, many of us develop a special nose for the events, instincts, what is going on. And third, we don’t—it is two things, third—we make different scenarios according to different political outcomes—possible outcomes. And I can tell you that two, three very important events which were surprising for many we were able to pinpoint.
For example, 2009, the executive summary of World Energy Outlook writes: We are seeing a silent revolution in North America which can be very loud very soon. I’m sure Mr. Priddle, who is our former executive director, will remember that. Second, in 2007 we said China would be a coal importer. At that time it was impossible to think China being a coal importer. I can give you many examples, but this is the way how we look at it. And we don’t only look at it till ’40, but we look at also the medium term, make it stop over there and assess the developments. And our work is not only based on the modeling, but we look at the projects under consideration, ongoing projects, and assess them and look at them very carefully.
LEVI: So that makes the challenge of modeling in, let’s say, the five to 10 year timeframe considerably different from the one of projecting out to 2040.
BIROL: Exactly. Exactly.
LEVI: So you’ve done this look. You’ve looked broadly. What are your—what are your big takeaways?
BIROL: From this year’s outlook?
LEVI: Yeah, from this year’s.
BIROL: OK. This year’s outlook, I would—when we look at the world, there are two major preoccupations people have today who look at the energy issues closely. One is the low energy prices, whether or not, first of all, they’ll be with us a long time, and whether or not it is good, the low oil prices—it’s a good thing or a bad thing, low oil prices. Second, the very important meeting, as you mentioned in Paris. What needs to be done in Paris and what is the role of energy secretary? We focus on those two things. And plus, every year we focus on a country in-depth. And this year, we worked on India.
LEVI: So let’s take each of those in turn. So last year you put out the report after the oil price collapse, but I’m confident you didn’t finish it before the oil price collapse. So you must have had to go back and rethink a lot of assumptions, drivers, trends in this year’s report. So how did things change? What’s new because of what we’ve learned in the last year about how the oil market behaves?
BIROL: So we still stick to the—our view that we need higher prices in order to balance the market’s oil prices. Not this year, maybe—not next year, but through 2020, in the next few years, we have to see prices coming towards $80 to balance the markets. And I cannot exclude the possibility, the other school of thought, and some of the colleagues are here, who think that we have now a $50 world and it’s a new normal.
So you were talking about the IEA. In the IEA we always had a long-established, if I may say, it’s a cliché, namely the lower the prices are the better it is. I think in this context where we are, it may not be completely true. For example, if the prices remain $50 for 10 years or so, the reliance on the very few countries in Middle East will increase because the high cost areas, such as North America, Brazil, Africa, their production will be lower and we will need to rely more and more on a very few number of countries in the Middle East where the low-cost production comes from.
Currently about 50 percent of the global oil exports come from Middle East. And according to the World Energy Outlook, if the prices remain $50 for a long time, this 50 percent jumps up to 75 percent. And we all know that the Middle East is going through a turmoil. And this may not be over tomorrow. It may be a structural issue. So from an oil security point of view, low prices for a long time may not be necessarily be good news.
LEVI: So you have a low-price scenario that’s essentially driven by increased OPEC and Middle East production. And if I remember correctly, your central scenario has OPEC’s share either holding steady or slightly decreasing for a bit, but then it’s still, even in the central scenario, it is a source of growth. Can you imagine a long-run scenario in which the Middle East decreases or OPEC decreases as a share of global production over the long haul?
BIROL: To be honest with you, where we stand today it is very difficult to imagine in the normal circumstances. There may be some geopolitical events, but if everything is left to geology and economy, I think Middle East will be still very important. And here, I want to say something. U.S. shale oil is growing. It’s good news for U.S. and for the rest of the world, for oil security. But you shouldn’t forget something. All, if not all, most of the oil production in the United States will be consumed within the United States. And the rest of the oil importing world—China, India, other countries—will need Middle East to get their oil. So there is no other area. So therefore, to give the wrong messages to Middle East, we may not need you anymore, may not be the same policy. We will need Middle East, but of course reliance—overreliance on Middle East carries a lot of risks in itself.
LEVI: You talked in the report about another risk that comes with low oil prices, which is the risk that we will become less energy-efficient, that we will do less to conserve, and as a result we’ll perform more poorly on climate change. How big of a—how big of a risk is that?
BIROL: It’s serious because when you look at the renewable energies today they are making strong inroads in the global energy markets. Let me give you one example. Last year, of all the power plants came on the market, all of them, 50 percent of those power plants were renewables, other 50 percent coal, plus oil, plus gas, plus nuclear put together.
LEVI: And this is by capacity, or?
BIROL: Capacity, capacity. So 50 percent renewables, 50 percent everything else together. So it’s a big growth of renewables. And this is mainly—is a result of renewables becoming more competitive, but strong government support. And given the low oil price environment, there is no guarantee that the governments will continue to support renewables or the same efficiency policies.
LEVI: And just to help us think this through, when you think about renewable electricity, it’s generally not competing directly with oil, except in some small parts of the world. So what’s the connection?
BIROL: It is oil, because the gas price is affected from that. Many gas prices are linked to oil prices. And as a result of that, they have a competition with renewable energies.
LEVI: Are you seeing any signs that governments are backing off support for efficiency or lower-carbon energy?
BIROL: Not yet. Not yet. But if the prices continue like that, and if we are not able to get a strong signal from Paris, we may well get some not-good news in that direction.
LEVI: So another striking piece, at least to me, in outlook is that you—if you look at your outlooks and those of others a couple years ago, the story was coal is growing as a share of global electricity and it will continue to grow, and it will actually become the largest energy source in the world within some number of years. If you look at this year, you see the share of coal declining over time and I believe sometime in the 2030s renewables, including hydro, actually passes coal. First, is that correct? But more importantly, what’s driving that? That’s an extraordinary change of outlook.
BIROL: First of all, our coal projections expectations each year come down, but the turning point is China, because China today consumes half of the global coal. And Chinese government in the last two years took very strong measures, shut down inefficient coal-fired power plants, mainly in order to reduce the local pollution in the cities. And as a result of that, last year we saw Chinese consumption came to a halt. And now we expect that will be a big trend for some time. OECD countries, coal consumption is declining. In United States, in Europe, it’s in a decline.
But there are two areas where we see an increase of coal. One, India. The second one is East Asia, Indonesia, Thailand, Philippines, and this—and there’s very important, very strong economies there. Just to give you a number, East Asia power plant, they are going to build in the next 20 years is equal to building one Japan plus one Korea. And two-thirds of those power plants are inefficient coal-fired power plants, with all of those consequences. So there are two forces, India and East Asia, pushing the coal consumption up. But the China and OECD world pushes it down. As a result, we see coal consumption grow slightly, much less strongly than before, but losing a market share. And as you say, the renewables are soon taking over coal as the number-one fuel in the power generation.
LEVI: Why does these countries build such inefficient coal-fired power plants? Is it purely an economic calculation that coal’s so cheap, or are there other reasons that they’re not building more efficient coal-fired power plants?
BIROL: Yeah. I will ask you—I would tell you the following: We are in Thailand. You want to build a power plant. One is a power plant run by coal, the other one is run by LNG. To produce one kilowatt hour of electricity from coal is 50 percent cheaper than running by LNG. And in the absence of any regulation, any mandatory rule, people go and build coal-fired power plants, just pure economics, not in gas. And they don’t go—in many cases they don’t go build, in East Asia, the high-efficiency coal plants, but the cheaper version, inefficient coal-fired power plants. In fact, in Paris one of the four major demands IEA has is banning of building inefficient coal-fired power plants.
LEVI: So you talked about this turn in China.
LEVI: Let’s just very briefly pause on that. So there’s been a strong swing in, let’s say, the conventional wisdom on Chinese commodities demand and energy demand in particular in the last couple years, and particularly the last year. China was supposed to be the driver of global oil demand, global coal demand, and so on, and now everyone is racing to be more pessimistic than the next. Could we—could we see a sort of a turnaround yet again? Is there something that might revive China as a big demand—as a big and rapidly growing demand center, like people expected a couple years ago, or is it done?
BIROL: We are approaching the end of the biggest energy demand growth story in the history of energy, China. It is not necessarily only or mainly because of Chinese economic growth is slowing down, but Chinese government—if I had to choose one government in the world—which takes the energy efficiency very seriously, it is China. It’s number one. Second, Chinese economy is changing its structure, moving from a heavy industrial-based economic slowly but surely to a lighter economy. So therefore, Chinese energy demand growth has slowed down.
But in the commodities, oil, and gas, and coal, this is the case. But in the renewables, it is the opposite story. Last year, 2014, the renewable energy investment in China, put for the hydropower, solar, and wind, was higher than all U.S., plus all European countries, plus Japan put together. So they are now changing the think. So this is—in the past it was coal, and then oil, and now it is the renewables.
LEVI: So let’s go from China then to—
BIROL: And nuclear power as well. I should—nuclear power as well.
LEVI: You talk about how India doesn’t replace China, but becomes an enormous driver of energy demand growth. So when we were sort of at the dawn of the explosion of China as a center of energy demand growth, about 15 years ago, very few people came close to being right, at least about the pace of that growth. How clear or cloudy is the crystal ball when you look at the future of India, given how much structural transformation might happen in the economy, given the complexity of politics and policy, and that affecting transformation there?
BIROL: Now, India is a big different than China in terms of how the country is governed, the energy background, economic background. First of all, from a population point of view, it is very different. In the next 20 years, 300 million people will be added to the cities in India. And 85 percent of the buildings that they are going to live, they have not been built yet. Whether or not these buildings will have the building costs efficiency standards will affect everybody. So this is just to give you the idea of how India will be important.
But at the same time, Indian governments want to push coal very strongly because it is the—there are 240 million people in India. They have no electricity. It’s a major issue. And the cheapest base load electricity technology is coal. They want to use coal. But at the same time, in the solar, they want to be number one. And they are making major efforts there. So in India, I think we will see very strong energy demand growth. On one hand, the fossil fuels, but at the same time we will see also renewables, especially solar, playing a very important role.
LEVI: How about the oil piece? Are we going to see Indians driving like Americans, with the single car?
BIROL: I hope not. I hope not, first of all. I should tell you. (Laughter.)
LEVI: See, in New York we don’t drive as much.
BIROL: You New Yorkers, you are not driving, but you are sitting in the cars also. (Laughter.) This is—what I see is that in just—again, a bit of a number. Again, I am a man of numbers, as Mr. Priddle knows. In United States today, 750 person out of 1,000 person own a car. In Europe, 550 out of 1,000. In India, it is 20 out of 1,000. There is a huge difference. And with the increasing income that was 7 percent GDP growth, and disposable income is growing, one of the first things what they do is to buy a car for convenience or prestige reasons, which will fuel the oil demand growth. And therefore, we believe India will be the single-most important country in the next years to come as the oil demand growth center.
LEVI: So we said at the outset we’re going to talk about the World Energy Outlook, but also about the International Energy Agency. The International Energy Agency is not typically thought of as the most dynamic organization in the world.
BIROL: Thank you very much for saying. (Laughter.)
LEVI: But you are seen as someone who changes things. So what’s on the agenda? What do you want to get accomplished at the helm? And what are the challenges going to be in steering what is ultimately a multilateral organization with a—you know, you have a large number of bosses. How does that work?
BIROL: I learned a lot from my predecessors. Led by, of course, Mr. Robert Priddle here with us. But what I want to do, and the day—the first test, on September the 1st, that I came up with the strategy: Modernization of the IEA. And the modernization of the IEA is three pillars. First, opening the doors of the IEA to emerging countries. I don’t want to—there are many journalists here—when they write according to IEA, comma, rich man’s energy club, comma, energy demand growth 2 percent. I hate this, between the commas that we are considered as a rich man’s energy club. We should be truly international. In order to be international, I would like to see emerging countries working with IEA very strongly.
LEVI: Does that mean becoming members or partners?
BIROL: Members, partners—as of, we had a ministerial meeting two weeks ago. And in the last three months, we worked very hard, and Mexico decided to be a member of the IEA, a very important energy country—oil, gas, 10 million people living there. And China, Indonesia, Thailand, decided to be associate members of the IEA. And many other countries now are interested to work with the IEA. So this is—we started this new push and hopefully we will make the IEA truly international. This is the first pillar.
The second pillar is we are not to be an organization looking after always security with our stocks. In addition to that, I am very interested that IEA also looks after the global gas supply security, becoming very important when you look at the LNG markets, power plant issues and so on. This is second area. The third area, and the last pillar, is that we have a, if I may say so, an important position in the traditional fuels—oil, gas, coal technologies. But now, I would like IEA to be the international hub for clean energy technologies, but mainly the central bank of energy efficiency. We want to be the international voice of energy efficiency, where we can transform the energy efficiency policies and give it to the other countries. Because energy efficiency fuel, but you don’t need the reserves for that. You can—you have the knowledge and you can transfer the knowledge and give it to the other countries.
LEVI: So no strategic energy efficiency reserves?
BIROL: Exactly. For example, a very good one. So these are—these are very—you are right. We are not dynamic, because we are too strong. But we are a conservative institution. For us, these are very important new strategies. And we had a ministerial meeting two weeks chaired by the U.S. Secretary of Energy Mr. Moniz, with all the ministers. In addition to our member countries, the Chinese minister, Mexican, and so on. And this new vision has been fully endorsed by the governments. And in the next four years we will go—(inaudible)—to realize this vision.
LEVI: All right. Let me push you a bit on the vision of expanding the club. There have been efforts over time to bring in China, India, so on, as members. Is that sort of the ultimate desirable goal, or does that—does the formalism get in the way of actually cooperating with them? How do you think about the tradeoffs around that?
BIROL: So first of all, to be truly international it is impossible not to work with those countries. And we are losing our—(inaudible). First, oil security. In the U.S. and everywhere, all the countries have their stocks. And this is the main reason why IEA is there, in terms of stockpile disruption. We are there to—and there’s a problem, and we have been very successful several years—several times to do that. But our countries’ stocks today cover 50 days of global oil.
But 10 years later, if it’s still like this, even all the countries keep their stocks as they are—and in some of those countries there are even discussions to sell the stocks—if they keep their stocks as they are today, this 50 days will go down to 40 days very soon, because global oil demand is growing outside of these countries. So we will lose—(inaudible). So it’s imperative that we get China, India, Indonesia on board. But what kind of structure it will take will be depending on both sides of discussions. But some countries, like Mexico, will be member in 2017, Chili sometime in the next eight year, but with the emerging Asian countries, it may take some time. And we need to define the way all together.
LEVI: And I trust the Asian countries are also quite central to this vision for gas security.
BIROL: Oh, very much so, including not only emerging countries but also Japan. One of the reasons why I came to this idea is the following: After Fukushima, Japan went—Japan wanted to find out where is LNG? Where can I buy the LNG? And there is no information in the market. There is no information in the market. We have to know every LNG facility in the world, what is their capacity, what is their maintenance time, what are the flows in LNG. We have to have a transparent want, whether it’s IEA or another institution. But IEA wants to do that, to show that the information is there and in case a problem IEA will be the organization which will coordinate the LNG flows in the right way.
LEVI: I want to talk briefly about Paris, and maybe during the Q&A we’ll come back to the energy efficiency plan, which I think is really exciting. So you’re going to be in Paris at the talks not only because you live in Paris and the IEA is based in Paris, but because you’re in high demand there. You’re not negotiating. This is a negotiation among countries. So what do you do at the Paris talks?
BIROL: So I will be—I am flying back tonight. I’ll be the next 13, 14 days in Le Bourget. This is close to Paris, where the meetings are taking place. We are, A, informing the negotiators. B, trying to show them what the right way is. And discussing every day five or six major countries. For example, I go tomorrow as Wednesday, Thursday we have a major event with China together. Xie Zhenhua, who is the Chinese top negotiator with Chinese delegation, and ours has discussed the way that China should go, and how China can even go further than what they are having in their pledges.
We discuss with all the countries and try to make them understand one important fact: Energy needs to be at the heart of a Paris agreement. Otherwise, it risks to be a failure. Why? Very simple. Two-thirds of the emissions causing climate change come from the energy sector. If you cannot solve the problem in the energy sector, then you cannot solve this problem. So therefore, we want to see, again, a strong signal coming from Paris for the energy sector. And we want to make sure that it is there.
LEVI: And what would that look like?
BIROL: It may have different things. For example, three things I expect minimum. One, the banning of inefficient coal-fired power plants in the agreement. Second, pushing forward the renewable capacity expansion, providing some incentives. And third, we would also like to see that there are some efficiency standards put internationally. One example, today one-third of the global oil demand growth comes from the Asian tracts only—one-third of the global oil comes Asian tracks. And almost none of these tracts have any efficiency standards. If you put the efficiency standards there, then it can reduce the emissions and slow down the oil demand growth. And this is one of the topics they will discuss in Paris.
LEVI: And there was some progress between the United States and China on—
BIROL: Exactly, exactly. Very true.
LEVI: One last question and then I will go to members for questions. One of the big subjects of discussion is Paris is going to be measurement, reporting, verification, transparency, and so on. And that’s a role that the IEA has played formally in some places, informally in others. Do you see a role for the IEA to play in implementing whatever comes out of Paris in terms of transparency, in terms of making sure we have reliable data and each country can know what the others are doing?
BIROL: Exactly. This is exactly what we would like to do. We would like to—we trust all the countries, but control is better than the trust in most cases. So what we want to do each year we want to look at all these countries’ energy sector and how much emissions come from different parts of the energy sector, and compare that with their pledges. So we want to track them. We want to monitor them. We want to publish the results so that the countries can see and everybody can see what they said, what are their pledges, commitments, vis-à-vis what they are doing each year. And we would like to do that as a follow up of Paris, among other things.
LEVI: And you think the prospects for that are—do you need Paris—approval from Paris to do that, or can you do that regardless?
BIROL: We will do it regardless, but we also believe that we will get a recommendation from the discussion.
LEVI: The discussion? All right, a lot of ground to cover. I trust Fatih will let you take the conversation anywhere among these subjects that we have been talking about. So please put your hand up, wait for a microphone, stand, state your name and affiliation, limit yourself to a single question, and keep it concise, please. And I’ll remind everyone, this is on the record, including your questions. Please.
Q: Masazumi Nakayama with Citigroup.
What are you—should expect OPEC to transform to adapt to the new environment?
BIROL: So I work—before Mr. Priddle hired me, I worked in OPEC for six years. So what I learned is that I don’t want to comment on OPEC issues, is what I can tell you. (Laughter.) But since you compare OPEC and IEA, I want to give—I give too many numbers, I’m sorry, but I love numbers. One really striking number—
LEVI: You won’t find any complaints from me.
BIROL: Now, OPEC is known to be an organization of the oil producers. And IEA is known organization of the oil consumers. And this is the distribution of role. But when you look at the numbers, in the last six years the oil production from IEA countries were three times higher than the OPEC countries, the growth, and the oil consumption in OPEC countries were two and a half times higher than the IEA countries. So it is a little bit now gray the area. And as IEA, we would like to—we would like to—again, we have a lot of consuming countries, but perhaps we have to see that we have consuming and producing countries. The U.S., Canada, Australia, Norway, Mexico is joining. We have a lot of producing countries as well.
LEVI: You’ve been part of this exercise for several years between the IEA and OPEC in comparing your forecasts and learning lessons from that. What have you learned from that?
BIROL: There are similarities and there are differences. One of the differences that we see, that the share of renewables energies, the growth, is stronger than our colleagues in Vienna are thinking. They may be right. We may be right. I don’t know. And we also put the climate change sustainability as an important part of our strategy, whereas of course the colleagues in Vienna look at the different issues more in-depth, the refinery sector and other. But in general, the growth assumptions and the—especially when we look at oil—there are not huge differences.
LEVI: Next question? Paula.
Q: Thank you. Paula DiPerna at the NTR Foundation.
I have one and a half questions, but one is a factoid check. Last time you were here, I believe you talked about the—a voluntary effort on the part of the major oil producers to develop a protocol that captured methane emission that was going to be announced in Davos. So I’m not sure about that. But my question has more to do also with something like that. In other words, wherever I go, I see nothing systematic in the energy business. I just see fragmentation. A little solar here, a little renewable there, some wind. You know, what is—why is it so fragmented? Is it fragmented? Is there any kind of wholesaling of any particular planning going on? I’m not aware of any and I’d love to see what you think.
BIROL: Now, in the first question, for the colleagues to refer to what you mean, methane is a very powerful greenhouse gas. We talk about the carbon dioxide, but methane is a very powerful gas. And a lot of methane escapes the atmosphere during the production of oil and gas. And a big chunk of it can be fixed with the existing technologies if the regulation was there. And unfortunately, in most countries there is no regulation for the companies to make sure that they minimize, if not nullify, the methane emission escape. And this what was announced in Davos on a voluntary basis, what is, again, some eight CEOs last month in Paris also announced that they want to make it on a voluntary basis. But I wish it was not voluntary and it was a mandatory rule that the companies would reduce—have to reduce their methane emissions.
Why it is fragmented, the renewables, gas, coal? Because the big players are very, very different. It is not fragmented only in one country. I can tell you with the big picture it is China. And this is, of course, going according to a plan. But in many countries, since we have many players, which is how the markets are designed, they are going in different ways. But through the investment framework, giving with the incentives, the governments may well give a shape to the development of different sectors. When you look at Europe, many Nordic European countries gave a shape to pushing the energy efficiency and the renewables. Whereas, in some other countries they chose a completely different way. In a market economy, it is the way, how do markets work? Looking at the incentives, costs and opportunities, they take their turn.
LEVI: Does it matter that it’s fragmented? Is that a problem?
BIROL: I think it is—if you look at it from a public perspective, if it is—if it grows only based on the economics of it, and if you have something you missed in your economic calculation which are not valued, which are in fact valuable but not valued in the calculations, you may miss certain things such as the energy security or the environment. Since they don’t come into the economic consideration or calculation, the profit maximization, which is the basis of many steps, may not bring the best outcome always for the public good.
Q: Joel Mentor, Barclays.
So I know you mentioned that one of your main goals is to achieve the banning of inefficient coal-fired powered plants. And another goal is also including more emerging nations. But I know a lot of times we’ve heard that a lot of leaders from emerging countries, energy ministers and so forth, have complained that if they were held to certain standards of energies efficiencies, particularly the coal, that they would be held to a standard that industrialized nations weren’t held to when they were developing 100, 150 years ago. How do you combat that charge to achieve your goals?
BIROL: So when it comes to climate change, I think it is extremely important that we are fair if you want to get everybody on board. First of all, many people know that—but just to tell you—that the climate change issue is not an issue of today, but it is a history. So since 150 years, if not longer, today’s rich countries, U.S., European countries, use a lot of carbon, coal, oil, and gas, and put a lot of carbon in the atmosphere. They have a certain responsibility there. And they became rich. Now, many emerging countries say we want to get rich by using cheap energy, which is in many cases coal now. We cannot say that you cannot do it because we want to save the world.
So therefore, what needs to be done is that in my view it would be wrong to say categorically no to coal. What we can say is to ban the inefficient coal-fired power plants, and to provide incentive to those counties to move from the inefficient to a higher efficiency coal-fired power plants. But this should be within a mechanism that those countries—international mechanism—that those countries move has to be compensated.
LEVI: I have a question for you about gas. You know, a couple years ago you put out a study about a golden age of gas. And in recent months, as the last year, as the oil price has collapsed and the gas price has gone down with it, you’ve seen a lot of talk about how a lot of the supply may not be economically viable. Do you have a different view now on whether we’re entering a golden age of gas, or is it still similar to what it was then?
BIROL: So when I chose the title of the book I am very careful. I didn’t call the book the golden age of gas. The title to the book was, “Are We Entering a Golden Age of Gas?” (Laughter.) There was a question mark there. So the idea—and the answer is today, yes, in some parts of the world. But in the others, not yet so, mainly because of the economics of gas. There’s plenty of gas. Now, U.S. is coming strongly, is an LNG exporter. Australia, lots of LNG is coming to the market. But they have to compete with the cheap coal and the government-subsidized renewables. So to say golden age of gas, companies have to work in Asia very much because this is the very demand that the growth will come from.
LEVI: At the—in the back row. Can you stand? Sorry.
Q: Jody Liz (sp), journalist.
I want to ask a kind of broader question in reference to what you were just talking about with the future of the IEA. The world may be currently awash in a lot more energy than we’re used to, and prices may be lower, but the continent—especially the continent of Africa, especially sub-Saharan Africa is still fairly energy poor. And so I’m wondering, what is possible to develop access to energy in that area, and what can the IEA do there?
BIROL: So you are right. In Africa today, sub-Saharan Africa, two out of three people, they have no access to electricity. Two out of three is a big number. It is almost 600 million people, they have no electricity. And on the other hand, what is—this is definitely a very heartbreaking story. But what is more heartbreaking is Africa is the continent which is one of the richest energy resources—oil, gas, coal, renewables. Huge hydropower resources, solar—325 years of solar—very strong solar, and wind. But there is one thing missing here, which is the investment. Investment is not coming to Africa for African domestic infrastructure. But investment is coming to Africa for energy, but two out of three dollars coming to Africa energy sector are for the projects to export to African energy to other countries one dollar for the African domestic infrastructure.
So what needs to be done? In my view, Africa may well try something which has never been tried extensively before. When you look at the history, the economic growth of United States, or Europe, or China, was realized on the back of using a lot of coal—as far as to think about the industrial revolution and the different developments in Europe and also in China. In Africa, we may well see in addition to the—in addition to using gas and other fossil fuel resources—we may well see, this economic development may well be realized by using renewable energies. And why? Because of the following: Not only they have huge resources, but at the same time the cost of renewables are falling down significantly today. And there is room, given how Africa is organized geographically, there is a lot of room for distributed generation activities. So this is what we work with the African governments, how to make most out of the renewable energy resources in order to address the energy access issue, with African Union and many other countries.
LEVI: And you—you know, IEA studies, what, now seven or eight years ago helped put some of this on the map, this question of energy access in Africa.
LEVI: Next? The gentleman in the back there.
Q: Mark Clifford, Asia Business Council.
Could you talk more about the role of energy efficiency, particularly in China, which is about three times less efficient than the U.S., and even worse compared to Japan and Germany.
LEVI: And tell us a bit about what you see the IEA doing as that third pillar.
BIROL: So let me tell you a little bit about China and energy efficiency. I am not that pessimistic. First of all, Chinese government is putting a lot of efforts to improve the energy efficiency. Let me give you one—another number. Today, the average Chinese coal-fired power plant efficiency in China, the feed, is much more efficient than the United States. Sorry to tell you, but this is the case. Of course, in the industrial sector, China has to do a lot. And the very fact that China has a lot of room for energy efficiency improvement is a very good opportunity for all of us. The more they improve, the better it is for the rest of the world because we will see—we will have less emissions coming from China.
The U.S.—turning back to the question—the U.S. has to do a lot in order to improve the energy efficiency. In many areas, from the buildings to the car manufacture area. But in the recent years, the push for CAFE standards stronger was excellent. And I would like to see this efforts also for the trucks, which is a very important part of the equation. You can be sure that China is making strong efforts to push the energy efficiency not necessarily mainly driven for the climate change reasons, but mainly for the—bring the cost of energy down and also addressing the local pollution issues.
LEVI: Third to last.
Q: I’m Rick Donner. I’m with Moody’s Investor Service.
My question is a very broad one. Looking into the distant future, what do you see as the answer to global warming? Is it energy efficiency, as you’ve talked about? Is it renewable energy? Is it possibly nuclear energy? Is it a combination of those things? How do you think we’re going to address global warming? And my second question is, what is your view on getting there? Are you optimistic that we will ultimately accomplish or address global warming? Thank you.
BIROL: Thank you. Now, first of all, what can be done? I would group that—I would put them in two groups. One, with the existing technologies we can do a lot, with the right policies and existing technologies. More efficiency, more renewable energies, more gas replacing coal, and also, in my personal view, using more nuclear power in the countries where it is accepted. So these four already can make a big improvement in the reduction of the emissions.
Plus, there are some policy issues. For me, the most important one being phasing out the fossil fuel subsidies. Today, we have $500 billion U.S. worth of fossil fuel subsidies for coal, oil, and gas. The prices of those fuels are artificially low in many countries. Governments pay from their pocket and bring to press down. And this is, of course, giving a boost to widespread consumption of them. Anything which is cheaper than its own value we human beings use in a wasteful manner. This is one.
Second, fossil fuels and the renewables are in competition. If you make the fossil fuels so cheap, then the renewables are in unfair competition on energy efficiency. It is something like 100 meter race, running race, and the fossil fuels start from 50 meters to go to finish the race, and the renewables start from scratch, or the other fuels. So therefore, it is—this is under—with the policies, we can do a lot. We can do, according to our analysis, about two-thirds of the job can be done with the right policies and existing technologies.
But also, we need new technologies to be developed. And it is even after reasons why in Paris it is going to be discussed, the innovation is very important. What kind of—I think Bill Gates made a very strong move together with some other governments to put money in the R&D, in energy issues. And as IEA, we are going to take part in that new project. And this can give a boost to new energy technologies such as electric cars or such as the—how the energy can be stored, which is a very important project, or maybe different types of nuclear power plants which are smaller but more, in quote, handy to be used in some emerging countries.
So I would put it in two ways, so the existing technologies and with the new technologies. Whether or not I am optimistic, I am very optimistic. And what makes me—one of the reasons what makes me very optimistic is the U.S. government, Chinese government, many other governments are showing leadership now, giving us political momentum to address this issue.
LEVI: Let me ask you about this Gates announcement. For those of you who haven’t been following, Bill Gates and a group of other very wealthy individuals committed to essentially providing patient capital for scaling up innovations if governments would double their R&D spending. So that’s the kind of space that the IEA hasn’t been active in, relatively speaking, before. So what kind of role do you see the IEA playing in something like that?
BIROL: It was, in fact, the third pillar I mentioned. IEA needs to be the international hub for clean energy technologies. And we are in touch with those countries and those individuals who are putting about $20 billion U.S. on the table to be—have a coordinated role in that effort, because that R&D can accelerate the innovation. And this can be definitely very good news for the climate change.
LEVI: So not everything will be uncoordinated.
BIROL: No, exactly.
LEVI: The gentleman in the fourth row here.
Q: Thank you. My name is Chandu. I’m from IBM Research about 30 miles upriver from here.
If I look at the Paris talks, one of the stated goals is to keep the global warming within 2 degrees centigrade. And there is the notion that if you exceed 2 degrees compared to the pre-industrial age, that there will be some unknown or nonlinear effects. However, if you look at the trend of CO2 and warming and all of the models that we have, 2 degrees seems completely inevitable and we’re well past that. So are we kidding ourselves in setting too easy of a—or too difficult a goal? Or are we lurching into some unknown territory? You know, why do we have a stated goal that we know we cannot achieve?
LEVI: I’m going to take two questions together here to make sure that we’re getting in a proper set. In the back row.
Q: Herbert Levin, Council member.
What does the price of oil have to go to before it becomes attractive to the market to invest in nuclear power generation in the U.S.?
BIROL: OK. So for the first question, we are extremely close to lose the battle to reach our climate goal if it is 2 degrees. If we are not able to get a strong signal in Paris, the things will be extremely difficult to fix afterwards. It is the very reason one of the things that we are suggesting in Paris is we have to go prepare ourselves—I know it isn’t the reason behind your question—but we have to also prepare ourselves for a different world which is warmer, lots of surprises, almost in all cases negative surprises, drought, disappearance of species, losing the rather fragile equilibrium of our planet with all its implications, which is called under the title of adaptation to a new world.
So therefore, we have—we have already consumed a big chunk of the carbon budget which is given to us by the nature. We have only all the causes of it, we have very little left. And Paris may well be our last hope to get back to the right track. But if we don’t get the right message from Paris, it may well be too late to reach the 2 degrees target. And I can tell you, that a big chunk of the countries coming to Paris, especially so-called small-island states, say that 2 degrees is too much. It should be 1.5 degrees, because we’ll be in trouble.
LEVI: If we don’t avoid the 2 degree threshold, is it still worth reducing emissions?
BIROL: Oh, definitely. Instead of 3.6 degrees it is better to have 2.1 degrees. Two degrees not a—in the Bible or something like that. This is just a change.
LEVI: But I also failed to enforce the rule—the Fahrenheit rule here.
BIROL: Yes, exactly. Yeah, it is 6 degrees, more or less. The oil and nuclear, so, I think many of the nuclear projects today are not based on the comparison with the economics of oil, but you can get the general analogy picture and the countries’ priorities. Today there are 72 nuclear power plants under construction. And about half of them are in China being constructed. And it is mainly for the Chinese energy policy priorities, also in India and elsewhere. But of course, you are right in your point. In a higher energy price world, there would be more impetus to build new nuclear power plants, definitely so. Or, as some people say, if there was a price on carbon, it will help the nuclear power to have a higher share in the energy mix.
LEVI: So we have time for one last very short question. I thought I saw a hand here before.
Q: Bruce MacDonald, Johns Hopkins School of Advanced International Studies. Glad the nuclear question came up.
And my question is, as you point out, the nuclear—civilian nuclear energy appears to be less-dependent on prices and more on energy security. Can you—if you do get—if you don’t see oil going back up toward $80 a barrel, do you think, looking at the flip side, do you see nuclear energy then fading away, other than strictly for energy security purposes?
LEVI: And let’s, to put some sharpness on this and get a quick answer, let’s say gas never goes above $5 a million BTU in the United States. Does nuclear have any economic prospects here, because that’s what it’s competing with?
BIROL: It is if you only look at the nuclear without government support it will be very difficult. But I want to say one more thing. Perhaps it is the finishing thing. Two things—one about the markets, one about the IEA. What I see today in the oil prices, oil security, unfortunately, I should say, the attention to oil security is going down. But it is a grave mistake that the attention to oil security is indexed to the changes in the oil prices. And we can pay a very high cost for that if we go that direction. This is one. Second, about IEA, I finish with IEA. During the four years I am in the IEA, the energy security will continue to be our guiding principle.
LEVI: And you’ve been with the IEA for, what, 20 years now?
BIROL: Twenty years, exactly.
LEVI: So you’ve been through a lot of changes in the world. And despite that, I think there are fewer times you could have taken the helm of the IEA—you could not have taken the helm of the IEA at a time with fewer—with more changes happening in the world. So it’s an exciting time. And I think we all look forward to seeing what happens in the energy world and how you ride its waves. Thank you for joining us this evening. (Applause.)
This is an uncorrected transcript.