A question that frequently surfaces in discussions about energy and environment is why we continue to use fossil fuels, rather than transition to cleaner energy sources, given the threats posed by climate change. According to Statoil chief economist Eirik Wærness, no one has identified a means of sustaining acceptable levels of economic growth without them.
“What is fundamentally driving energy demand, and therefore also the use of fossil fuels, is GDP growth,” said Wærness earlier this week during an event hosted by Columbia University’s Center on Global Energy Policy.
“It is difficult to see how you can get to much lower CO2 emissions trajectories without doing something about global GDP,” Wærness said. “And we haven’t seen yet the economic model that gives us the same amount of growth but with much less CO2 emissions.”
Statoil’s outlook to 2040 envisages 8-9% annual growth in renewables – mainly wind, solar and geothermal. But since these energy sources are starting from such a low base, they will still account for a relatively small share of the total energy mix, Wærness said. He added that it would take a massive amount of new renewable capacity – 50,000-52,000 new windmills per year – to produce the same amount of energy as newbuild coal plants coming online in China and India.
“You need energy to grow. When you grow, you use more energy,” Wærness said.
Even if a fuel source or technology did exist at a cost and scale that allowed for substantially reduced consumption of fossil fuels, transition would not be immediate.
“Given the capital stock that we have – we’re talking about a large number of cars, and half the cars that are bought today will still be on the road in 2025 – so some of these capital stocks take a long time to change,” said Wærness. “All the existing power plants, for example, you cannot just mothball them and believe it doesn’t have an impact on economic growth.”
“What we’re struggling with is finding a model whereby we could allow emerging economies to grow, and at the same time grow with less use of energy and less use of fossil fuels,” Wærness said.
Energy Efficiency: ‘Profitable By Definition’
Energy efficiency offers another means of reducing fossil fuel use, and the cost-benefit analysis for implementing energy efficiency measures is somewhat different than that of switching from fossil fuel energy sources to alternatives, such as solar and wind. But while energy efficiency measures “are profitable by definition”, they also present an obstacle to economic growth, at least in the medium-term, said Wærness.
Wærness made reference to a study which found that if all countries were to put the same price on CO2 emissions that Norway does – €55, or roughly $75 per ton – that would provide sufficient incentive to drive efficiency measures that would lead to emissions reductions necessary to achieve a 2-degree or 450 parts per million atmospheric CO2 concentration scenario. “The problem is that they don’t happen,” Wærness said.
“Why don’t we insulate buildings? It is profitable to do it. It costs less than you save…but we still don’t do it sufficiently,” Wærness said. “We don’t have framework conditions in place. On a global scale, that’s a huge challenge.”
One major deterrent to efficiency improvements is that benefits translate into savings, rather than income, and are accrued over long stretches of time. “The revenue side of a climate measure is avoidance of future costs,” said Wærness. “And that revenue does not accrue by 2035. How you get that into the GDP equation before 2035 is one of the big questions.”
