Energy, natural resources, climate change

DNV’s Technology Outlook 2020 reports on the global megatrends that no strategists can afford to ignore. This extract focuses on energy, natural resources and climate change. Articles on the technology uptake from these trends will feature in future issues of Energy Forecast.

Energy futures

For a citizen and consumer in the Western world, it is easy to take sufficient energy supplies for granted.

Generally, energy is supplied securely and at reasonable prices. Climate change has only recently become part of the energy agenda.

More than three billion people worldwide depend on solid fuels, including biomass and coal, for cooking and heating. About 1.5 billion people have no access to electricity, and electricity supply is unreliable for another billion.

Cooking with solid fuels contributes to the deaths of 1.5 million people globally, due to diseases caused by indoor air pollution.

Furthermore, in the absence of reliable energy services, neither health services nor schools can function properly. Without effective pumping capacity, access to water and sanitation is constrained.

A World Bank study suggests that countries with underperforming energy systems may lose up to 1% to 2% of their annual growth potential due to power outages, overinvestment in backup electricity generators, energy subsidies and losses, and inefficient use of scarce energy resources.

Even in a country such as the US, power outages cost $80bn annually. Expanding access to electricity is a critical ingredient in human development and accelerated industrial activity.

The energy mix

The global energy mix will be dominated by oil (31%), coal (28%) and gas (20%). Toward 2020, global energy consumption will increase by 19%, and over 70% of the increase will be in non-OECD countries, with China in the lead.

Coal will continue to dominate global energy supplies, driven by electricity generation in China. By 2020, 39% of the world’s electricity production will come from coal.

Natural gas has the potential to be a bridge toward a low-carbon energy future. Liquefied natural gas demand is expected to grow from today’s 200 million tonnes per annum (mtpa) today to 350mtpa by the year 2020.

The main uncertainty lies in the competition from gas. It is unlikely that coal-fired power plants will be replaced by gas-fired plants in the coming decade. Hence, the actual impact of natural gas as a bridge toward a low-carbon economy is probably limited in the short-term future.

Under a stricter carbon dioxide regime, in which gas would compete with new coal combined with carbon capture and storage (CCS), the bridging potential may be clearer.

Unconventional gas will have a significant impact on the global gas market. If the US stopped using coal and switched to shale gas, the reserves would last for at least 50 years. Although this is unlikely to happen in the next decade, this figure serves as a useful illustration of the vast resources available. In 2020, production of shale gas in the US may have reached 28.3 billion cubic metres.

The oil sand reserves in Canada represent one of the largest oil reserves in the world – second only to the reserves in Saudi Arabia.

Current daily production from Canada is 1.2 million barrels, while Saudi oil production is 10 million barrels.

By 2020, oil production from oil sands will probably grow from 1.4% to 3.5% of global production.

Wind energy will remain the backbone within the renewable sector. Growth up to 2010 exceeded expectations by far; and by 2020, it is likely that 8% of the global electricity production will be based on wind energy.

The United Kingdom plans to install 10 000 wind turbines in the coming decade, corresponding to an investment of €100–150bn.

By 2020, wind power investments in the US and China will reach $150bn and $300bn, respectively.

Biofuels and biomass-based energy generation are strongly supported by national and regional governments.

Additionally, many of the leading oil and gas majors are investing heavily in research on second-generation and advanced biofuels that do not compete with food production. However, the biofuel part of the total energy mix will vary significantly between regions.

Considerable investment in infrastructure is necessary for enabling the large quantities of biofuels to be delivered to the consumers in many parts of the world.

Nuclear power today provides 5.5% of global energy production. Deployment of generation III nuclear reactors will continue to represent an abatement potential of 20 gigatonnes of CO2 in 2020.

China and India have aggressive growth plans for nuclear energy, but identification of long-term solutions for nuclear waste is an important constraint on its growth potential.

Solar power is expected to account for 2.3% of the world’s total power demand by 2020.

On a global scale, there will be no shortage of “primary energy” in the next decade. There are huge geographical differences in availability, however, and exploration and processing capacities are likely to be bottlenecks that could lead to energy shortages.

Toward a low-carbon future

The period from 2010 to 2020 may be the start of a transition toward a low-carbon economy. This transition is off to a tough start, however.

The financial crisis of 2008/2009 rocked the general public’s belief in business and governments, and the failure to reach a concrete global agreement in Copenhagen in 2009 on reductions in emissions further eroded this confidence.

There are, nevertheless, several positive signs: the renewable directive from the EU makes a mandatory commitment for its member states to cut CO2 emissions by 20% by 2020.

The comprehensive American energy-climate bill, currently called the ”American Power Act”, aims to reduce the nationwide GHG emissions by 17% below the 2005 level, through a combination of carbon pricing, promotion of CCS, and financial and employment incentives for nuclear and renewable energies.

Pulling in the same direction

Renewables provide more energy from domestic resources, and hence reduce the need for imported energy. Part of the reason for both the EU’s Renewables Directive and the US Energy Independence and Security Act is to reduce dependence on imported energy through the development of domestic renewable sources.

Another reason is to build strong local suppliers that can compete in the global arena. Similar initiatives can be seen in China, India and Singapore.

Current renewable energy sources, however, usually deliver energy at a higher price than traditional carbon-based sources.

Thus, there is the risk of being tempted to protect domestic industries by offering traditional energy at a more competitive price, rather than switching over to renewable sources.

The winners in this scenario will be those that can balance the transition to renewables, while simultaneously maintaining a strong gross domestic product growth. Several countries have shown that this is possible.

Uneven global water challenges

The water challenge is a question of supply, demand and uneven distribution. The current rate of construction of new water infrastructure will result in a significant supply deficit.

Northern China, southern and central India, southern Australia, the southwest US and the Middle East will be the regions that are most affected by water shortages.

Toward 2020, new, more cost-effective and energy-efficient desalination plants will have to be developed, as well as more efficient distribution networks. Currently, between 25% and 40% of distributed water is lost due to leakages, requiring clearly large-scale investment in new infrastructure toward 2020.

Regardless of improvements on the supply side, more efforts are required to reduce demand.

Globally, the greatest water use today is for agriculture (70%), while industrial activities use 17%, and domestic requirements and municipalities use 13%. The demands of the two last categories quadrupled in the second half of the 20th century. Financially, it is three to four times more effective to create better demand solutions then to focus on the supply side.

Toward 2020, the importance of water for power generation will come into focus. In 2007/2008, power plants in the US were within days of being forced to shut down due to a lack of water for cooling. The frequency of this type of event is expected to increase toward 2020.

Moreover, most of the alternative energy and climate change technologies require a considerable amount of water.

Rare materials rarer

An integral part of many alternative energy solutions is the use of permanent magnets in electric generators and motors. The production of these requires relatively large quantities of exotic and semi-exotic materials often referred to as rare earth elements (REEs).

Neodymium, dysprosium and samarium are used in permanent magnet motors; yttrium is used in light-emitting diodes; lanthanum is used as the anode in nickel metal-hydride (NiMH) batteries; cerium used in catalytic converters; and other REEs are used as alloying elements, semiconductor dopants, and in welding applications.

The global annual production of REEs is concentrated in China, whose mines account for 97% of global supplies (see table), at an all-time historical high. Until new mines are opened to satisfy the exponentially growing demand, the production of hybrid cars and electric vehicles as well as new-generation wind turbines may be constrained by limited production of permanent magnets.

The photovoltaic industry is changing rapidly, as solar cells are no longer exclusively sawed wafers of pure silicon. Although thin film technologies are cheaper, they rely on tellurium, cadmium, selenium and indium – elements that could become a limiting factor.

None of the rare materials will be depleted by 2020, but the realisation that access to these resources will not last forever may generate an innovation pressure.

Urban mining

The waste stream represents a risk to the environment, public health and safety. However, the waste stream could be considered as a resource stream.

The largest challenge with the waste stream is separating the vast range components, compounds and elements that are otherwise co-mingled.

Landfills contain chemical, biological, biodegradable, non-biodegradable, electronic wastes in liquid or solid form, some of which are hazardous or toxic. For most of these materials, present recycling rates are low; but high demand, combined with limited resources, is likely to encourage recycling.

Theoretically, many streams such as aluminium, steel, glass and some plastics could be recycled indefinitely. Recycling these materials could result in significant energy savings; as much as 75% less GHG emissions can be realised for recycled steel.

Managing material wastes is directly linked to the recycling stream, but waste management is cumbersome. Most municipal recycling programmes rely on selective sorting by consumers and industries, which requires education, legislation and suitable infrastructure.

Currently, 33% of municipal waste in the US is recycled (up from 10% in 1980), and many countries in Europe recycle 50% of their waste; but globally, only 10% of aluminium foil is recycled.

Toward 2020, goods will be increasingly designed to be reused and recycled in an automated way, and “urban mining” will become a growing focus area.

Climate change indicators will be clearer than ever

As individuals, we experience local weather and seasons, but we cannot directly sense global climate and how it changes. This can only be understood through monitoring systemic parameters across the entire globe over a long period. These parameters include air temperature throughout all levels of the atmosphere, ice thickness, extent and mass over continental scales, water temperatures across oceans at depths of hundreds of meters, changes in forests and ground cover that can be monitored by satellite imaging, gas, aerosol, and particle composition for the entire atmosphere, and more.

Data accrued from these measurements over the next decade will show that most of the main indicators of climate change are following a more worrying trend than the worst-case Intergovernmental Panel on Climate Change forecast published in 2007. The primary examples (already confirmed) are loss of polar sea ice cover and net melting of the Greenland and Antarctic land ice. These trends will continue to accelerate.

Satellite data will show new, globally averaged high-temperature records. New local high-temperature records will be registered at many places across the globe, outnumbering by a clear margin new local record low temperatures.

One of the most disturbing observations will be that the rise in atmospheric CO2 concentration will probably exceed the 2010 rate of increase of 3ppm/year, after a decade of increasing by about 2ppm/year.

Positive feedback processes will be confirmed to be operating, as indicated by a clear increase in atmospheric methane concentration, in addition to increases in CO2.

By 2020, the extent of summer ice over the Arctic sea may be less than 10% of that which has been considered as normal for the last 800 000 years, further enhancing warming of Arctic surface waters.

Dramatic climate change will appear to be unavoidable in the 30- to 100-year time frame, and the only remaining uncertainty will be how fast and how negative the global consequences will be. A climate change “tipping point”, after which warming continues despite complete elimination of anthropogenic GHG emissions, may be confirmed to be unavoidable.

The mechanisms and processes responsible for long-term climate change are relatively well understood, but current climate models do not include all the relevant first- and second-order effects, and therefore are not yet fully predictive. As simulation methodology improves and computing power increases, however, climate models will become much more reliable and will be able to provide relevant guidance for long-term planning. Such models may even provide new insights into how responses to climate change can be managed in more effective ways than are currently being considered.

Before this, real-world risk management decisions will need to be made in order to start the long process of mitigating and adapting to inevitable changes.

How climate change will alter the planet

The current, globally averaged sea-level rise is about 4mm/year and, if extrapolated linearly, will result in manageable changes in sea level as far ahead as 2100. The sea-level rise will accelerate, and evidence of faster melt of Arctic and Antarctic land ice will grow. Hence, the 2010 worst-case sea-level rise scenario – of 1.8m by 2100 – may become more probable.

The latest climate modelling results show that the frequency of extreme weather events will probably rise over the next 10 years, and a noticeable increase in damage, injuries and losses from these should be expected.

The global insurance industry is already adapting to this scenario.

Warming ocean waters may transform the seafood industry by forcing the permanent migration of those wild fish stock that are able to do so, to oceans with more favourable conditions.

Boreal forests will face destruction from invasions of pests previously held in check by cold winters, and this will be compounded with unusual summer heat and periods of drought that are unprecedented for the last several millennia.

Climate change mitigation

In the absence of strong international agreements, unilateral, regional and bilateral commitments to emissions reduction (e.g. the EU) will become more important in the period up to 2014.

It is possible that the lack of political action may be balanced by strong shifts in consumer and corporate attitudes, resulting in a privatisation of climate change mitigation through voluntary shifts in consumption.

In all cases, peaking of society’s GHG emissions (either before or after 2020) will require fundamental changes in the way humans produce and use energy and organise their activities, particularly in the electric utility, transport and building sectors.

By 2020, it will become clear which technological solutions and strategies are most cost-effective, and which technologies can be scaled up.

In parallel, a range of low-hanging fruit will be picked to reduce emissions, primarily energy-efficiency improvements in the transport and building sectors.

Each year that peaking of global emissions is delayed, increases the acceleration of climate change due to positive feedback, and thereby ever more stringent measures will be required to reverse the climate change trends. By 2020, the level of anticipated damage in the next 25 to 50 years – due to unavoidable climate change – may become high enough to motivate in-depth evaluation of a range of geo-engineering concepts and solutions.

Technological innovations will steadily reduce the cost of several key climate change mitigation strategies. Publicly supported research will be essential for achieving the required innovations, but it will also be necessary to adjust market signals through pricing of GHG emissions.

The case for adaptation planning

For the world to have a fair chance of keeping the average temperature increase below 2 ºC over the next 100 years, global GHG emissions need to peak before 2020.

The current strategies for permanently reducing GHG emissions are progressing too slowly.

The EU-funded study “PLANETS” concluded that the best likely CO2 concentration obtainable is 530ppm, with an expected temperature increase of 2.5 ºC. It is therefore expected that in the next decade, negative consequences from climate change will impact the most highly exposed regions.

Even if all anthropogenic emissions completely ceased from today, global average temperatures would continue to rise for centuries, due to the inherent inertia in the climate system and the long residence time of CO2 in the atmosphere.

The shipping and offshore industries as well as other industries with infrastructure along coastal areas will need to expand their adaptation measures in order to resist higher environmental loads and floods.

Coastal cities with hundreds of millions of inhabitants will probably be overwhelmed in the next 50 years, unless they take serious measures.

Such upgrading and enhancement of flood protection systems are typically 10- to 30-year projects; so, in order that they are effective in time for unavoidable climate changes, they must be initiated within the next decade.

A range of agricultural practices will be exposed to drier and hotter summers, less predictable rainfall in the spring, and reduced access to irrigation as competition for freshwater resources increases.

Radical regional-scale changes in agricultural production will be unavoidable, requiring considerable planned and co-ordinated responses on both national and international levels.

By 2020, yields from rain-fed agriculture (the dominant method) in some African countries could be reduced by 50% from already inadequate levels.

Det Norske Veritas (DNV)

Printed with permission

A printed copy of the full report can be accessed at: http://www.dnv.com/moreondnv/research_innovation/foresight/outlook/index.asp