Hot Topic: A European Perspective on Climate Change

The EU is a significant producer of the CO2 emissions causing global warming. But it could also play a key role in combating climate change, writes Iain Conn of BP.

The EU is an important player in the new energy age. It is part of the energy problem, and it is also part of the solution. The EU's energy consumption is growing, and this contributes to climate change. However, it is also active and progressive in tackling climate challenge.

I see four key drivers that will shape the future of energy and determine what we might call the 'solution envelope' for the next 50 years. They are the growth in demand for energy, the challenge of energy supply, concerns about energy security and the reality of environmental constraints, particularly climate change.

ENERGY DRIVERS

Total demand for energy worldwide has risen by around 15% during the 21st century so far. This is due to growth in the global population and rapid growth in the Chinese, Indian and other emerging economies. Most forecasts project global energy demand growth of some 60% between 2002 and 2030.

Electrical power generation will remain a component of energy demand growth. Electrical power will continue to account for around 40% of our primary energy needs, twice as much as transport.

By 2030, the world will use well over 50% more electrical power than it does today. However, perhaps 40%–50% of the power capacity required by 2030 has yet to be built. The power generation choices we make over the next few years will therefore be highly significant, both for the future energy mix and in terms of tackling climate change.

Official data suggests that our current conventional oil reserves will last for about 40 years. Our natural gas reserves are expected to last 70 years at current production rates. Beyond this, we are confident that new reserves of oil and gas will be found and developed.

With coal, the ratio of reserves to production is much greater. We have at least 160 years of reserves at present. Some estimates suggest that new coal reserves could last for 1,000 years – no one has yet gone seriously exploring for coal.

There is no immediate shortage of global hydrocarbon resources. However, there is another cause for concern: resources are not necessarily located where the demand is greatest. This is certainly true for oil and gas.

There is widespread concern about energy security. Future demand for oil and gas will be broadly concentrated in three main areas: the US, European and giant Asian economies. Meanwhile, conventional oil and gas supply will increasingly come from four different areas: the Middle East, Russia and the Caspian, West and North Africa, and Latin America.

The situation with coal is different: 64% of coal reserves are found in the three largest areas of consumption. These facts underline the continuing importance of a reliable international environment for energy trade and investment.

The final driver of our energy future is climate change. The economics of climate change have been extensively analysed, and most recently and comprehensively brought together by Sir Nicholas Stern in his review for the UK government.

BP concurs with the overall message of his work: that climate change caused by human activity is real and will have far-reaching consequences; that urgent action is required to mitigate climate change; and that the cost of early climate change mitigation will be substantially lower than the cost of doing nothing. The Stern report looks set to have a powerful impact on public opinion, as will former US vice-president Al Gore's remarkable film An Inconvenient Truth.

ACTION ON CLIMATE CHANGE

The existence of climate change is no longer an issue. What is needed now is not diagnosis but action. My own conviction is that technology and appropriate public policies lie at the heart of all the potential solutions to the challenges we face and that all of them have a vital European dimension. There is no 'silver bullet'. Governments, international agencies, the EU and the private sector all have vital contributions to make.

Any successful response to the challenges of the new energy age will need to achieve progress on several key goals. The first goal is to make our current markets work as effectively as possible. Properly functioning energy markets are fundamental to energy security, economic competitiveness and the efficient use of resources to address climate change. The second key requirement is to create a level playing field for all low- and zero-carbon energy technologies and solutions.

To achieve these goals, a stable long-term investment environment needs to be created that will encourage and reward the desired shift towards lower-carbon energy and the technologies that underpin that shift. This requires a clear and credible signal on the future price of carbon, which means setting long-term, progressive and realistic targets for CO2 reductions and giving consistent support to market mechanisms that establish the carbon price.

Europe has already established the first regional market pricing mechanism for carbon through its Emissions Trading Scheme (ETS). In due course, the ETS could become one part of a linked system of regional and global carbon markets.

BP accepts the need for long-term and progressive CO2 targets, a viable carbon market and technological development. It also supports long-term need for low-carbon energy in the EU energy mix. Unfortunately, the ETS is in imminent danger of losing credibility. The oversupply of allowances is killing the market.

National Allocation Plans (NAPs) need to reflect reality and to be matched to progressive reductions in carbon intensity reaching out far beyond 2012 if they are to provide a basis for long-term investment and business planning through to 2030.

Partial auctioning of allowances should increasingly come into the picture, to ensure a credible economic incentive for real carbon savings.

FAR-REACHING APPROACH

Given the scale of the challenge we face, all of the available solutions to climate change will probably be needed. Our approach to low- and zero-carbon energy technologies should be inclusive and not rule out any options. In due course, the emerging carbon price should determine economic and technological choices in each market.

At this stage it is important not to pick winners. However, it is crucial that solutions with potential are not hindered and can progress to economic scale. These must include, in my view, advanced biomass and biofuels, carbon capture and storage, and nuclear fission.

Technology and innovation will, of course, benefit from focused and effective research and development. Europe needs to dedicate more resources to energy research, development and deployment.

Energy efficiency is perhaps as near as we can get to a 'silver bullet' because it simultaneously improves security of supply, assists with climate change and enhances the competitiveness of Europe. Energy efficiency can and should be strongly incentivised on an equivalent basis to low- and zero-carbon forms of energy supply.