Efforts to accelerate energy technology change.

 

The pace of the global energy transition has slowed significantly since the 1970s, despite national and international efforts to accelerate energy technology change in response to the oil crises of the 1970s, current concerns about global warming, and the goal of ensuring universal access to modern energy services.

A complex system of organizations and institutions has emerged at the international level to promote energy technology cooperation and provide both financial resources for clean energy investments and price signals to favour low-carbon energy technologies; and a global system for the transfer of hundreds of billions of United States dollars is in the making. The International Energy Agency (IEA) maintains 40 multilateral technology initiatives, also known as implementing agreements, covering the full range of energy technologies, including programmes with voluntary participation designed to accelerate the deployment of clean energy technologies and cost-effective technologies for carbon capture and storage (CCS). Thus far, however, these international efforts have had a relatively small effect on the global energy transition.

The Clean Development Mechanism (CDM) under the Kyoto Protocol to the United Nations Framework Convention on Climate Change,4 for instance, was expected to greatly stimulate clean energy technology transfer to developing countries and significantly reduce costs for developed countries. The market value of Clean Development Mechanism transactions had reached $6.5 billion in 2008, but dropped thereafter by about 60 per cent as a result of the financial crisis and uncertainty about the future climate policy regime. Looking ahead to 2012, renewable energy projects are estimated to make up 61 per cent of the total number of CDM projects, accounting for 35 per cent of certified emissions reductions (CERs), with industrial gas and methane projects accounting for just under half of the remainder of CERs. If fully implemented, CDM projects contracted during the period 2002-2008 would require $106 billion worth of low-carbon investment, primarily in “clean” energy.

 CDM investments have been concentrated, however, in a handful of large emerging economies, such as China, Brazil and India. From 1991 to 2009, the Global Environment Facility (GEF), which serves as a financial mechanism for the United Nations Framework Convention on Climate Change, allocated more than $2.7 billion to climate mitigation activities while leveraging an additional $17 billion in financing. In 2008, the World Bank also established the Climate Investment Funds which represent a collaborative effort among the multilateral development banks to address climate finance gaps. By 2010, contributors had pledged $6.4 billion in new funds. One component, the Clean Technology Fund finances the scaling up of demonstration, deployment and transfer of clean technologies and focuses on countries with significant mitigation potential. The first round of investment plans encompasses 13 countries, energy efficiency projects, bus rapid transit, concentrating solar power, and wind power. 

The transfer of environmentally sound technologies is recognized under the United Nations Framework Convention on Climate Change, but action on the ground has progressed relatively slowly. The Conference of the Parties at its sixteenth session, agreed to establish a Climate Technology Centre and Network, which aim to support technology transfer and local technology innovation capacity.

Recent efforts in developed economies to support clean energy technology have typically focused on economic instruments for creating niche markets and promoting the commercial diffusion of new technologies. 

Efforts of emerging and other developing economies to support clean energy technology have typically focused on domestic research, development, manufacturing and export capacities.

Globally, less than 65 per cent of the rural population had access to electricity in 2008 . Two thirds of the people without electricity access were in sub-Saharan Africa and South Asia. Only 11 per cent of the rural population in sub-Saharan Africa have access to electricity. From 1970 to 1990, more than 1 billion people had gained electricity access, half of whom were in China alone. From 1990 to 2008, almost 2 billion additional people secured electricity access (Global Energy Assessment, forthcoming). However, there is no evidence for acceleration or deceleration of electrification over the past 100 years.

 Historically, the process of electrification has taken several decades in all countries. The United Kingdom and the United States needed about 50 years to achieve universal access around 1950. Among the emerging economies, Mexico, China, Brazil, Thailand and Mauritius achieved universal access in the 1990s. India and South Africa, however, still have some way to go, as do all least developed countries. The time needed to achieve universal access to electricity has ranged from about 20 years in Thailand and 40 years in China to 90 years in Mexico. Countries with low population densities or those consisting of dispersed islands face special challenges. Electrification in remote islands remains limited owing to high capital costs, despite special efforts made by small island developing States. For example, Fiji completed about 900 rural electrification community projects between 2005 and 2009, in order to be able to reach universal electricity access by 2016.

 China’s Twelfth Five-Year Plan, endorsed in March 2011, encompasses a green growth strategy geared towards building technology leadership, through special efforts to develop and deploy wind, solar, hydro, nuclear, energy efficiency, electric cars, “smart grids”, infrastructure and high-speed rail. It includes a plan to install 10 million charging stations for electric cars and to increase installed renewable energy capacity by 47 per cent by 2020. It plans to invest €57 billion in new ultra high voltage (UHV) transmission lines by 2015, and €460 billion to develop smart grids, and to increase nuclear power capacity from 10 to 50 GW, although most investments will continue to be for “clean” coal. South Africa aims to slow its greenhouse gas emissions growth and reduce those emissions after 2030, through increased energy efficiency feed-in tariffs for renewables, development of carbon capture and storage for coal-fired power plants and coal-to-liquid plants, a levy on coal-fired power and the introduction of a carbon tax. 

The Republic of Korea is implementing a green growth strategy and five-year action plan which aim fora 46 per cent reduction in energy intensity by 2030 and for an 11 per cent share of renewable energy. The national energy plan for 2008-2030 foresees investments in low-carbon transport, hybrid vehicles renewable energy technologies and the construction of 10 nuclear power plants. Mexico has set an indicative reduction target for its greenhouse gas emissions by 50 per cent from 2000 to 2050, and its Special Climate Change Programme makes provisions for wind power, cogeneration, efficient household appliances and lighting, promoting rail freight, and 600,000 efficient cooking stoves. Energy plans of the poorest and most vulnerable economies have aimed to find a balance between Governments’ immediate priorities and the priorities of aid donors, in order to leverage development assistance. For example, energy plans and policies of a number of small island development States aim to address their special vulnerabilities and promote renewable energy. For example, Maldives announced its goal of achieving a carbon-neutral energy sector by 2020; Tuvalu aims to achieve 100 per cent renewable energy utilization by 2020; there have been positive experiences with thermal solar water heatingin Barbados, Mauritius and Palau; hybrid solar-diesel power generation is being piloted in Maldives and Tuvalu; and geothermal energy is in the early phases of exploration in Saint Kitts and Nevis and Saint Lucia. Despite such commitments, however, fossil-fuel use has continued to increase faster than renewable-energy use in most small island development States.

The benefits of electrification are clear.

 For poor households in developing countries, having household lighting has been estimated to add between $5 and $16 per month in income gains. The added benefits of access to electricity in general would be in the order of $20-$30 per household per month through enhanced entertainment, time savings, education and home productivity. These benefits outweigh by far the $2-$5 per month that poor households typically pay for the cost of electricity. Energy efficiencies of kerosene, candles and batteries for lighting are very low. As a result, lighting services with kerosene cost as much as $3 per kilowatt-hour (kWh), which is higher than the cost of lighting with solar electricity, at about $2.2 per kWh in poor countries. In poor countries, diesel generators and micro-utilities typically provide lighting at a cost of $0.5-$1.5 per kWh, compared with centralized traditional utilities which often provide lighting at an effective cost of less than $0.3 per kWh. However, for traditional utilities, providing services to poor households becomes economically interesting only at demand levels of higher than 25 kWh per month, whereas poor households already derive great benefits per unit of cost in the range of 1 to 4 kWh per month. For the poorest people in developing countries, cooking (and space heating in cold climates) can account for 90 per cent or more of the total volume of energy consumed. Relatively simple and inexpensive improved stoves can reduce by as much as 30 per cent the amount of fuel needed for cooking (Global Energy Assessment, forthcoming). Some of these cooking stove programmes, including their costs, are described below.

An increasing number of Governments—notably, those of China, Japan and the Republic of Korea—and the European Union (EU) have adopted or followed some kind of national energy technology innovation strategy. Such strategies are typically part of national innovation systems, as discussed in chapter V, and provide a framework for coherent packages of policies and programmes that encompass all stages of the technology life cycle. The EU Lisbon Strategy provides a broad framework for a set of research, development and demonstration (RD&D) framework programmes. The fact that Japan has long focused on the promotion of performance targets for specific technologies has made the country the world leader in energy efficiency. China and the Republic of Korea have implemented industrial policies that focus on rapid adoption, local research, and manufacturing and deployment capacity, supported by flexible financial and regulatory support to accelerate qualitative improvements.

 In China, energy technology R&D has expanded rapidly and is dominated largely by Government-owned enterprises which provide 85 per cent of all energy-related R&D. Similar to those of Organization for Economic Cooperation and Development (OECD) member countries, the energy R&D portfolio is dominated by supply-side options, of which more than half entailed fossil fuel-related technologies and 30 per cent, electric power, transport and distribution. Most recently, the Government has strengthened its patent system, with the number of filings having boomed since 2002, which will soon make China’s patent office the world’s largest. The wind power sector offers a good example of China’s rapid creation of local capacities. The market share (of cumulative installed wind power capacity) of foreign manufacturers in China declined from 75 per cent in 2004 to 38 per cent in 2008, while the share of domestic manufacturers increased from 23 to 59 per cent.5 Such rapid replacement of firms’ market position has been unheard of in other countries’ energy markets).

Table II.1 provides global estimates of public and private investments in energy innovation, market formation, and diffusion (Wilson and Grübler, 2010; Grübler and others, forthcoming). In 2010, investments in commercial diffusion amounted to between $1 trillion and $5 trillion, substantially more than the $150 billion-$180 billion invested in market formation and the $50 billion for RD&D. RD&D and Government-driven market formation investments focused on power and fuel supply, whereas the majority of private sector diffusion investments were for end-use and efficiency.

Only one fifth of the $50 billion in public and private RD&D investments was for enduse technologies and energy efficiency in 2010. The R&D intensity of the energy supply industry was comparable with that of the textile industry, but much lower than that of manufacturing. Public investment in energy-related RD&D continues to be low in developed countries, amounting to 5 per cent of total public RD&D. It had increased rapidly in response to the oil crises of the 1970s, but collapsed in the mid-1980s in line with falling oil prices and privatization, only to recover from 2000 in response to concerns about global warming. Today’s level of public spending for energy-related RD&D in developed countries is still well below that of the 1970s and early 1980s, even though overall (not just energy) RD&D budgets have doubled since the 1980s. Public spending on RD&D of nuclear, fusion, fossil fuels and renewable energy technologies is lower in each case than in 1980.

Over the past 20 years, emerging economies have become leaders in terms of public RD&D expenditures. They are also emerging as leaders in terms of renewable energy patents. Energy RD&D in Brazil, the Russian Federation, India, Mexico, China and South Africa was about $19 billion (in PPP terms), which is more than the total public energy RD&D budget of all IEA countries combined (estimated at $12.7 billion in PPP terms). This challenges the conventional wisdom that new energy technologies are developed in OECD countries and transferred to developing countries. Energy RD&D investments in emerging economies were focused on fossil fuel and nuclear energy, with renewables and energy efficiency underrepresented (table II.2).

Market-formation investments, which include public and private investments in the early stages of technological diffusion, are sometimes also referred to as “niche market” investments. These include public procurement and government subsidies for certain technologies, as well as private investments involving renewable performance standards, carbon taxes and feed-in tariffs (chap. V). About $100 billion out of the total of $150 billion-$180 billion in global investments for market formation was for electricity generation, transmission and distribution, $20 billion-$60 billion for renewables and about $5 billion for end-use and efficiency. The niche market investments for renewables are expected to increase rapidly in the coming years, in view of current Government plans in developed and developing countries alike. International Energy Agency (2010b) has estimated that government support for renewables will rise from $57 billion in 2009 to $205 billion in 2035 (figure II.5).By comparison, fossil-fuel consumption subsidies amounted to $312 billion in 2009 (ibid.). These numbers do nonetheless indicate that Governments favour renewables, since, excluding grid investments, Government subsidies for modern renewables amounted to $9.7/GJ compared with $0.8/GJ for fossil fuels.

Global supply-side energy investment was about $740 billion in 2010, with $70 billion for renewables. These investments were dominated by electricity generation, transmission and distribution (51 per cent) as well as upstream investments in fossil fuel supply (46 per cent), including the oil exploration and production component and the gas exploration and production component which accounted for 19 and 13 per cent, respectively. The most important renewables investments were in large-scale hydropower (annual capacity additions of 25-30 gigawatts (GW)) and biofuels ($20 billion, of which $8 billion was for Brazil’s ethanol). Global investment in energy end-use technologies was more than double the supply-side investments, and reached an estimated $1.7 trillion in 2005, of which almost $1.2 trillion was for road vehicles (Grübler and others, forthcoming).Public-private partnerships in energy investments have become increasingly popular, accounting for almost $40 billion in the first semester of 2009 despite the global financial crisis. Other private sector investments in energy technology include investment by angel investors, companies’ internal investments, debt instruments, project finance, mergers and acquisitions, and investments in publicly listed energy technology firms. Energy-related venture capital investments boomed in EU and North America in recent years, reaching $15.5 billion, or 10 per cent of all private investments in energy technologydiffusion in 2008. Most of these investments were for solar, biofuels, biomass, battery technologies, smart metering, software, and highefficiency engines.