Powering the World Economy

In ancient times, human beings had a modest need for energy. They relied mainly on the energy from animal strength to do work. Humans first learned to control fire around one million BC and since then have used fire to cook food and to warm their shelters.8 There were water mills, wind mills and also solar energy for drying of foods. About 1000 BC, the Chinese discovered coal and started using it as a fuel, primarily for heating. Before the advent of coal, many regions experienced fuel crises due to the depletion of wood resources. The extraction and burning of coal made it possible to produce energy on a large scale and supply power to a growing economy.

8 Mitchem 1994.

The invention of the steam engine in the 18 th century, which has the capacity to convert heat from the combustion of coal and other fuels into mechanical energy, opened up new possibilities. The first steam engines were inefficient and wasted more than 99 per cent of energy, but by 1900, they had become 30 times more efficient than their predecessors. On top of this, steam engines, unlike watermills and windmills, could be set up anywhere, even on ships or railroad locomotives. The portability of the steam engine created a positive feedback loop, in that it enabled the transport of coal on a massive scale, providing fuel for more steam engines. Industrialization in the 19th century rested on this fact. World coal production, about 10 million tons in the year 1800, shot up 100-fold by the year 1900. Rough calculations suggest that the world in the 20th century used 10 times the energy used in the thousand years before A.D 1900.9

By the year 2030, it is predicted that energy consumption will increase by 52 per cent compared to energy demand in 2006 under a business as usual scenario.10 The Asian region will account for almost 40 per cent of that growth. Energy consumption in developing countries, particularly in China and India, has increased significantly in recent years. The share of the Organisation for Economic Co-operation and Development (OECD) nations in world energy demand is expected to fall from 56 per cent in 2006 to 47 per cent in 2030, while that of the Asian region, excluding Japan, will rise from 26 to 27 per cent (Figure 1.1).

An increase is foreseen in the ratio for natural gas in the energy resources from 23 per cent in 2000 to 28 per cent in 2030, while the share of oil and coal will decrease proportionately. Notwithstanding these variations in the above ratios, consumption of fuels will increase due to a rise in the overall energy demand. The consumption of oil, coal and natural gas in the Asian region is expected to rise from 2000 through 2030 by 38, 79 and 19 per cent, respectively. It is estimated that by 2030 China's dependency on oil will be about 30 per cent. However, if the world moves away from coal due to considerations for the environment and human health, there will be an increase in oil consumption in Asia and in the corresponding ratio too.

Energy in central and eastern Europe during the socialist era was provided by coal, the most monolithic of the fuel mixes. For instance, Poland relied on coal for close to 70 per cent of its primary energy and 95 per cent of its electricity supply in 2005.11 Lithuania, Bulgaria, Slovakia and Hungary

9 McNeill et al. 2001.

10 IEA 2008a.

11 Ibid.

Figure 1.1 Energy Outlook in 2030

16000

8000-

Figure 1.1 Energy Outlook in 2030

16000

8000-

2000

1971

2000

2010

2020

2030

Middle East (ME) IZZ1 Africa (Af)

Asia (excluding China) (As) I I China (C) OECD (including Japan and South Korea).

Latin America (LA) Former USSR etc. (FUe)

2000

1971

2000

2010

2020

2030

Middle East (ME) IZZ1 Africa (Af)

Asia (excluding China) (As) I I China (C) OECD (including Japan and South Korea).

Latin America (LA) Former USSR etc. (FUe)

Source: IEA 2006a.

ranked among the top 10 world-wide in terms of reliance on nuclear energy for electricity supply. For instance, Lithuania produced 85.6 per cent of electricity from nuclear energy in 1995.12 Another key characteristic of the energy supply of central European countries and the Soviet Republics was that they relied heavily on energy imports from Russia. Energy was one of the leashes through which Russia kept its republics and the satellite countries of CEE (Central and Eastern European) dependent, in accordance with the provisions of the Yalta Treaty since 1945. Large imports of natural gas, electricity, oil, nuclear fuel and other primary energy carriers built the basis of CEE energy supply.

One of the positive legacies of the Soviet era for the CEE region is the high share of natural gas in the fuel mix, and the relatively well-developed infrastructure for natural gas. Since Russia is endowed with the lion's share of the world's natural gas reserves, it relies heavily on natural gas as a primary energy source. Furthermore, it has developed an extensive pipeline network

12 IEA 2008a.

to provide central European economies with natural gas. This has resulted in a high dependence on natural gas in these countries. The share of natural gas in Hungary's energy supply presently exceeds 40 per cent, whilst more than 60 per cent of all Hungarian households are supplied with natural gas.13 Other countries in the region also rely largely on natural gas in their total primary energy supply, such as Ukraine (42.9 per cent), Romania (37.7 per cent) and Czechoslovakia (19.9 per cent).14 Since natural gas is the least polluting of the fossil fuels and emits only half as much carbon to the atmosphere per unit of energy as coal, this had a positive impact on the overall environmental performance of the energy sectors of these economies.

While the reliance on natural gas was desirable from an environmental perspective in the short term, after the fall of the Soviet era, it raised concerns of national sovereignty in several CEE countries and in the former Soviet republics. Since diversifying the import sources of natural gas is burdensome due to the costly and time-consuming pipeline construction, fuel diversification emerged instead on the top of the energy policy agenda of several CEE countries as a tool to promote energy security. Natural gas, however, remains an important fuel in the CEE region.

The energy industry was the largest polluter of the CEE region at the end of the socialist era. According to Kramer, the communists claimed that '(...) environmental pollution is the price that has to be paid for industrial development and the development of civilization',15 Baker and Jehlicka illustrate further the attitude of the communists. They argued that environmental problems arising from industrial production were only temporary and would be solved in the near future through scientific and technological advances.16 In the so-called 'Black Triangle', which was an area of heavy industry and coal mining in Poland, Czechoslovakia and East Germany, acid rain has turned many square miles offorests into a moonscape. In the Orlicke hory mountains, over two-thirds of the trees were dead by 1989, and even worse was the situation in the Krusne hory mountains and the Jizerske hory mountains.17 In this region, carbon emissions per unit of economic output were among the highest in the world; several times higher than those in OECD countries.

13 MOL 2001.

14 IEA 2006a.

15 Kramer 1983, 204.

16 Baker and Jehlicka 1998, 7.

17 See Carter 1993, 72-73.

However, at the root of all environmental damages related to the energy sector was the wasteful production and use of energy in the CEE region. While quality of life was significantly lagging behind that in OECD countries, the levels of energy consumption per capita were comparable to those in the most developed economies. In 1989, a Russian citizen consumed more energy than a citizen of any EC country, while he or she enjoyed only a fraction of the wealth of an EC citizen. As a result, environmental emissions per capita and per gross domestic product (GDP) were also high compared to the low standards of living. Thus, at the root of the energy-related environmental damages was the inefficiency of the energy chain, which is often characterized by energy intensity indicators such as total per capita energy supply (TPES)/GDP.

The stage is set for intense competition for resources among countries seeking to secure their energy supply by diversifying sources and areas of origin. According to projections of the World Energy Council, the fuels most widely used today—coal, oil and natural gas—will still account for two-thirds of primary energy even beyond six decades from now. Currently, coal is both cheap and abundant. Likewise, oil supplies are still high and new oil deposits are being discovered. Natural gas is the cleanest fossil fuel today but the transportation infrastructure is not very well developed in developing and transition countries. However, there is the option ofreducing the use of fossil energy to counter their environmental implications. This can be done through EE measures and substitution of alternative energy sources, such as solar, wind, geothermal, modern biomass and traditional hydropower generation. According to the World Bank's estimates, renewable energy could potentially provide up to 50 per cent of all energy by the middle of the 21st century, '(... ) given appropriate enabling policies and new technology developments'.20

According to the International Energy Agency (IEA) estimates, the world's increasing demand for energy will require a total investment of USD 20 trillion (value in 2005 dollars) by 2030 out of which about USD 11 trillion would be needed in the global electricity sector alone. Worldwide, the race is on to increase exploitation of existing oil fields and to find new ones. Capital expenditure in the oil industry amounts to just over

18 Certainly the citizens did not directly consume all this energy, but their per capita share of the national primary energy consumption was very high.

19 WEC 2006.

20 World Bank 2000, 23.

one-fifth of the total energy investment. Projected oil development programmes in North America will require a total investment of USD 856 billion over 2005. In order to restore Iraqi oil production to the 1990 levels, some USD 5 billion will be needed over the next six years and, in a rapid growth scenario, production could reach 5.4 mb/d by 2030 at a cost of USD 54 billion. China will need a total of USD 7 trillion investments, which is 18 per cent of the total investment (Figure 1.2).

Figure 1.2 World Energy Investment, 2005-2030

Refining 18% Other 9%

Biofuels \

Figure 1.2 World Energy Investment, 2005-2030

Refining 18% Other 9%

Biofuels \

Power generation

T&D

Mining

11% 1 ShifPin8

and ports

Total investment = $ 20.2 trillion (in year-2005 dollars)

Source: IEA 2006a.

Notes: E&D = Exploration and Development; T&D = Transmission and Distribution; LNG = Liquified Natural Gas.

Power generation

T&D

Mining

11% 1 ShifPin8

and ports

Total investment = $ 20.2 trillion (in year-2005 dollars)

Source: IEA 2006a.

Notes: E&D = Exploration and Development; T&D = Transmission and Distribution; LNG = Liquified Natural Gas.

The IEA states that a total investment of USD 20 trillion is required by the global oil and gas industry to keep pace with the anticipated demand over the next 30 years, of which about USD 700 billion is needed to support the Middle East oil sector. Oil from the Persian Gulf region will play an increasingly important role in the world economy. The uncertainty surrounding the developments in Iraq is a cause for concern. Investment in the global natural gas industry will average USD 157 billion a year over the next two decades to meet a near doubling in demand and to provide around 300 billion cubic metres of new gas production.

Global investments in Russia's energy sector are projected to exceed USD 195 billion by 2030. Peak investment would come in 2010 for prospecting new oil fields and gas reserves, maintaining old ones and improving the infrastructure for transporting oil. According to the IEA, the total level of investment in oil transportation will increase six-fold by 2030. Russia is poised to become one of the leading exporters of oil and gas by 2030, gaining an important niche in many markets, including Asia (Figure 1.3).

Figure 1.3 Fuel Share in Energy Investment Requirements, 2005-2030

Middle East

Russia

Africa

Transition economies

Latin America

OECD

China

India

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% ■ Coal ■ Oil □ Gas □ Power

Source: IEA 2006a.

According to IEA, world-wide electricity demand will double in the next three decades, with an average annual increase of 3.2 per cent. To meet this growing demand, the world would further need around 5,100 GW electricity generating capacity by 2030, and about half of that needs to be built in Asia. Europe would need to invest about USD 1.7 trillion on power plants, transmission and distribution to meet an increasing demand for electricity and maintain the current capacity. Germany alone anticipates a new capacity of around 40,000 MW in electricity production in the coming decades, which corresponds roughly to 60 large-scale power plants (Figure 1.4).

Figure 1.3 Fuel Share in Energy Investment Requirements, 2005-2030

Middle East

Russia

Africa

Transition economies

Latin America

Figure 1.4 Share of Energy Investment of Different Countries and Groups, 2005-2030

Source: IEA 2006a.

Due to limited state budgets, financing for necessary energy sector investments in transition economies and developing countries will pose the greatest challenge in the decades ahead. Developing countries will account for over half of the total investments over the next 20 years, or USD 10.5 trillion, with transition economies accounting for USD 1.85 trillion. Brazil's energy sector will need investments of USD 250 billion to meet the country's electricity demand in the next 20 years. More than USD one trillion will need to be spent on China's transmission and distribution networks—an amount equivalent to 2.1 per cent of China's annual GDP. India will need an investment close to USD 100 billion in electric and oil sectors. Notwithstanding the projected rate of investment for new electricity supplies, an estimated 1.4 billion people, mostly in Africa and South Asia, will still remain without electricity connection.

The underlying assumption of this overview, is in no way, that the firm predictions of various agencies such as the IEA can neither be influenced nor be avoided. It is our firm belief that policies do have the required leverage to influence the energy path. A significant reduction of energy consumption levels can be achieved if we promote such policies. Therefore, the issue is the need for a shift in paradigm—from policies which increase energy consumption to those that help to reduce it.

Solar Power

Solar Power

Start Saving On Your Electricity Bills Using The Power of the Sun And Other Natural Resources!

Get My Free Ebook


Post a comment