The IEA Comes up Short on Climate (Again)

By Greg Muttitt

The release of the World Energy Outlook (WEO) 2018 on Monday marked another missed opportunity for the International Energy Agency (IEA) to provide a roadmap to Paris success.

Governments and investors alike have been calling on the IEA to help guide them towards achievement of the Paris goals. Two years ago, the IEA itself proposed updating its climate scenario to match the ambition of the Paris goals, and also gave its updated scenarios a cameo in the WEO 2017.

The IEA has backtracked, however, removing any reference to the higher-ambition scenarios, or to the 1.5 degree Celsius (°C) goal. This comes just a month after the Intergovernmental Panel on Climate Change (IPCC) released a powerful report showing both the critical importance of limiting warming to 1.5°C, and pathways for doing so.

Following a summer of particularly devastating climate impacts, with unprecedented heat waves across much of the world, the IEA has opted for promoting the energy status quo. And 11 months after the World Bank Group decided to end financing for oil and gas extraction, the WEO 2018 instead calls for expanded investment in oil, gas and even coal.

Memories of Leadership

The IEA has proven that it can be a leader in steering energy decisions towards achievement of climate goals. When it first published its "450 Scenario" (450S) in 2008, the IEA was ahead of the curve. That scenario—designed to give a 50 percent chance of keeping warming to 2°C above pre-industrial levels—reflected the goals of the more progressive governments at the time.

But climate science has since indicated that even 2°C is dangerous—reiterated in last month's IPCC report. It was for this reason that governments decided in 2015 to increase their ambition, committing in Paris to pursue efforts to keep warming to 1.5°C, and in any case to hold warming well below 2°C.

At first, the IEA seemed to take this on board, as we explained in a recent blog. In the 2016 edition of the WEO, the IEA recognized that the 450S was not in line with the new Paris goals. It proposed developing two new scenarios, one aiming for "well below 2°C" (WB2), and one for 1.5°C.

The German government commissioned and funded a full exposition of the WB2 Scenario, published in a stand-alone report in March 2017. Many hoped then that the 2017 WEO, published in November of that year, would use this work to update its ambition to reflect the Paris goals. It was not to be.

In WEO 2017, the IEA replaced the 450S with a new "Sustainable Development Scenario" (SDS), with the welcome addition of goals on energy access and air pollution. But on climate change, the SDS maintained the pre-Copenhagen ambition level of the 450S. As the graph shows, the emissions pathways of the scenarios were identical. WEO 2017 only briefly mentioned the WB2 Scenario, and did not mention the 1.5°C Scenario at all.

Now, the new 2018 edition of the WEO omits reference to the WB2 Scenario as well, and fails to address 1.5°C at all.

Missed Goals

The WEO 2018 states that the SDS "is fully aligned with the Paris Agreement's goal of holding the increase in the global average temperature to well below 2°C." That statement omits the other half of the Paris goals, which are in full:

Holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C.

As for the "well below 2°C" part of the goals, the IEA claims that the SDS will lead to 1.7 to 1.8°C of warming. But how can a different result arise from the same emissions pathway that led to a 2°C outcome in the 450S? The answer is that the IEA has changed its assumption about what happens after 2040, beyond the scope of its own scenarios.

The IEA makes the 1.7 to 1.8°C claim by comparing the SDS with scenarios that lead to that amount of warming. As the IEA's graph shows, those scenarios depend on large-scale use of negative emissions technologies later in the century—including technologies that have been considered in theory but never tried in practice. If achieving the Paris goals is predicated on the later availability of these technologies and they do not work out, emissions to that point will be irreversible and climate limits broken.

Previous editions of the WEO have warned that negative emissions are likely not feasible at this level: WEO 2016 stated, "Such a situation is vastly removed from the realities of the current energy system, and the prospect is remote from today's perspective." WEO 2017 also cautioned that "all such technologies face severe technical, economic and resource constraints." And climate scientists have expressed growing concerns about reliance on negative emissions, as discussed in our recent blog.

In contrast, the new WEO 2018 describes negative emissions technologies as one of the "important sectors for innovation," and gives no warning about the dangers of reliance on them.

World Energy Outlook 2018 youtu.be

Misguided

All of this matters because, as the new WEO puts it, "Robust data and well-grounded projections about the future are essential foundations for today's policy choices." Scenario data and projections serve as a guide to the future, ideally to enable good decisions.

Without information about how to do it, it will be hard for governments to "pursue efforts" to keep warming to 1.5°C.

Investors too are increasingly using climate scenarios to test the robustness of their portfolios. They are vital tools for delivering the Taskforce on Climate-Related Financial Disclosures' recommendations and for the Climate Action 100+ initiative.

The new WEO states that:

Continued investment in oil and gas supply, however, remains essential even in the Sustainable Development Scenario to 2040, as decline rates at existing fields leave a substantial gap that needs to be filled with new upstream projects.

As Oil Change International's research has shown, investment in new oil and gas fields—beyond those that are already in operation—is not consistent with the Paris goals. The IEA is able to make the contrary claim for the SDS only because the SDS falls short of the Paris goals.

This is a crucial omission. Based on such projections, governments may continue licensing new oil and gas, locking in their future emissions, while failing to plan for an orderly just transition for workers. Investors may understate the risks associated with the energy transition, leading to future economic disruption.

More Fossil Fuels

The vast majority of WEO 2018, like in previous editions, is focused on the "New Policies Scenario" (NPS), which would lead to around 3°C of warming. By comparison, the SDS gets only one paragraph in the six-page summary.

The IEA has said before (in WEO 2017), if the future turns out like the NPS, "this will not be a sign of success," adding that, "Success for the WEO is about helping countries to achieve the long-term energy and related goals that they have chosen."

But since the NPS is so centrally promoted, it is the NPS that decision makers use as the default guide. As we showed in our Off Track report, the NPS' demand projections have been used by governments and investors to support damaging projects from Australian coal mines to Arctic oil drilling. This is why Oil Change International calls for the goals-based scenario—which the IEA says is the one it wants—to be made the central one in the WEO.

Furthermore, in the new WEO, the IEA repeatedly advocates for fossil fuel investment in line with the NPS. This investment will help create that very future that the IEA says it does not want. On oil:

Today's flow of new upstream projects appears to be geared to the possibility of an imminent slowdown in fossil fuel demand, but in the New Policies Scenario this could well lead to a shortfall in supply.

We estimate that around 16 billion barrels of new conventional crude oil resources would need to be approved each year between now and 2025 to avoid any potential "mismatch" between supply and demand. However, the average annual level of new resources approved in the three years since the oil price fall in 2014 was around 8 billion barrels. … The level of conventional crude oil approvals therefore needs to double if there is to be a smooth matching between supply and demand.

Much of today's media coverage can be expected to focus on the IEA's projection that (in the NPS) oil demand will not peak until after 2040. This narrative of ongoing future demand will also drive ongoing investment in more oil.

The same is true of gas: The WEO states that "building up infrastructure … requires conscious choices in favour of natural gas." It urges governments and companies "to ensure that adequate and cost-effective investment in new supply keeps gas as competitive as possible with other fuels," in other words reinforcing gas against competition from renewables.

Oil Change International research has found that there is no room for new gas development while achieving the Paris goals: Gas cannot be considered a "bridge fuel," as some claim.

Remarkably, the WEO also calls for increased investment in coal mining, especially in China and India, with $1 trillion of investment in new mining capacity over the period to 2040, as worldwide coal demand increases in the NPS until at least 2040: "Capital expenditures are needed along the value chain to sustain existing and to establish new mining operations, as well as to build railway and port infrastructure to connect new or expanding mining regions to coal importers."

Time to Change

Oil Change International believes the IEA has a significant opportunity for leadership, an opportunity that it regrettably missed in WEO 2018. It would in fact be easy for the IEA to become a climate champion by updating the SDS to match the Paris goals and by making that the central scenario in the WEO.

Decision makers—political and financial alike—are demanding the tools to implement their policy commitments and plan for success in a rapidly changing energy landscape. It is an opportunity that can't be ignored and, as the IEA faces increasing public pressure in 2019, calls for this increased ambition will only grow.

With time to spare to incorporate the IPCC Special Report, the mounting political and investor concerns, and the moral imperative of action on the heels of a year of devastating climate impacts, the 2019 WEO must step up high-profile ambition or risk becoming irrelevant in a world urgently demanding pathways to success.