Tell me my future: at 15 and at 35?

1. Energy Transition(s): where are we?Lima, 5th Global Energy Forum22 October 2019Jean-Michel GlachantDirector Florence School of Regulation& President FSR Global HubEuropean University Institute (Florence, Italy)

2. Paris Agreement is 4 years old… Tell me my future: at 15 and at 35?

3. Energy Transition(s)… overview Five key questions… answered after 3 weeks… to frame 1 year of research • 1- What is an “Energy Transition”? • 2- What are the costs & benefits of the coming energy transition(s)? • 3- Why some encourage more than others? • 4-Main challenges of these energy transition(s)? • 5- Opportunities of energy transition(s) for the citizens?

4. 1- What is an “Energy Transition”? Humans did many energy transitions Producing fire; domesticating ox, donkey, camel, horse, etc; domesticating wind (sailing, wind mill); domesticating rivers (river mill); etc. Last Energy Transitions(Vaclav Smill 2016-17) Across countries Coal > 50% energy in: England 1620; France & USA 1870-80; China 1960 Transition Duration: in a given country, Coal up to 1 century Leapfroging countries Oil in 20 years: 1950-70 Japan, 6% to 72% Gas in 10 years: 1965-75 NL, 5% to 46% Wind in 14 years: 2000-2014, 12% to 41% of electricity Entire World: much slower To do world +20% (5% to 25%) it took: Coal 35Y, Oil 40Y, Gas 60Y (need of specific assets) Today replacing x4 times more (80% world energy = all fossil fuels): How many years? 30 Y? ??

5. 1- What is an “Energy Transition”? IEA (World Energy Outlook, November 2018): Government driven 195 countries signed for long-term climate goals under the Paris Agreement in 2015 > implemented by 2030? “Todayover 70% of global energy investments ($2,000bn yearly = < 2.5% GDP) are government driven – the worlds’s energy destiny lies with decisions and policies made by governments” (FatihBirol) • Will it shorten the length of the transition? • NO (IEA 2018) World countries globally will reach their cumulated “Paris Pledge”, but this is not enough to trigger a world emissions peak. World 2°C still out of reach. • No guaranteed pathway yet. And actual implementation of ‘Paris’ Pledges by countries in 2020-2025 to be checked only in 2023

6. 1- What is an “Energy Transition”? IEA & Argentina Presidency (“Energy Transitions in G20 countries”, September 2018) Quote: “Energy transitions are driven by multiple goals, including *modernising and diversifying the economy; *improving energy security by reducing import dependency and securing energy access; *improving air quality; and *mitigating climate change. > Because the *national resources of G20 economies differ, and because *GDP growth, *per capita energy use and emissions vary from country to country, the energy sources and technologies on which G20 energy system transitions are based are highly diverse. > The pathways chosen by individual G20 countries to transform their respective energy sectors are also reflected in the Paris Agreement’s Nationally Determined Contributions (NDCs)” • No single world energy transition, but many countries energy transitions • Any single world Energy Transition economics?

7. 2- Costs & benefits of energy transition(s)? Various goals, technologies and resources of energy transitions = various costs & benefits No doubt; but do we have a robust world economics core: the “Climate” component of it? First, potential total costs of world Climate Change are not measured yet, we only have predictions (Size of uncertainty) applied (to Size of event) Some consensus on the type of events (catastrophes as drought and flood, mass extinction of species, agriculture decline, etc) and shape of their costs

8. 2- Costs & benefits of coming energy transition(s)? Nordhaus (Nobel 2018) evaluation: 4% GDP for 4°C (based on past local weather shocks) To compare: Earthquake Japan 2011 = 3% GDP *When to start stopping? 3°C (Nordhaus)? 2°C, if not 1°5C (Paris)? **When too late? (irreversible) 3°C to 4°C?

9. 2- Costs & benefits of coming energy transition(s)? >> Very strong criticism (like N. Stern & J. Stiglitz) for lack of relevant empirical basis Recent analysis Working Paper NBER, August 2019 (Kahn& C°) Past increase temperature 1960-2014 in 174 countries, reproduced again in 21 century, reduces GDP by -7% in US; but temperature limited to Paris Agreement limits to -1% (BAU: -13% in Canada; US, Japan & India -10%) Nature Climate Change (US EPA report on Climate Change) April 2919 Going from 2.8°C to 4.5°C in US: Health impact ($46bn) Loss of labor ($75bn) as major costs; Loss of coastal land ($26bn), Road damage ($12bn), Flood ($3.8bn). But loss of crops ignored Global Commisssion on Adaptation (Ban Ki-Moon, CEO World Bank Georgevia, Gates Fundation, etc) September 2019 – Detailed Cost & Benefits analysis Doing $1,800bn investments (<2% world GDP) by 2030 (in *weather warning, *infrastructures, *dry-land farming, *mangrove protection,* water management) could yield $7,100bn (8% GDP) Examples: *Knowing storms 1 day earlier can cut damages by 30%; *using drought resistant seeds increase crops in Zimbabwe; *climate-responsive infrastructures in towns prevent flood damages; etc.

10. 3- Why some encourage more than others? Fundamental: Heterogeneity of Climate Change dimensions OECD works for COP21 (in 2015): Annual temperature change scenario

11. 3- Why some encourage more than others? OECD works for COP21 (in 2015): Precipitations scenario

12. 3- Why some encourage more than others? OECD works for COP21 (in 2015): Urban Floods scenario

13. 3- Why some encourage more than others? OECD works for COP21 (in 2015): Sea-level coastal threat scenario

14. 3- Why some encourage more than others? Heterogeneity of Climate dimensions IEA & Argentina Presidency (“Energy Transitions in G20 countries”, September 2018): no single world energy transition, but many countries’ energy transitions Energy transitions are driven by multiple goals, including modernising and diversifying the economy; improving energy security by reducing import dependency and securing energy access; improving air quality; and mitigating climate change. Because the national resources of G20 economies differ, and because GDP growth, per capita energy use and emissions vary from country to country, the energy sources and technologies on which G20 energy system transitions are based are highly diverse. The pathways chosen by individual G20 countries to transform their respective energy sectors are also reflected in the Paris Agreement’s Nationally Determined Contributions (NDCs)

15. 3- Why some encourage more than others? More of Basic Politics with Geography: Geopolitics IRENA January 2019 “A New World: the Geopolitics of the Energy Transformation” As big shift as “biomass to fossil fuel” 2 centuries ago. Why? **Relative position of states will reverse (fossil fuels rich to go down) **New energy leaders will emerge: China for sure; India why not **More diverse energy actors Renewables are better distributed all over the world, and within countries More decentralised energy: small entry size & low costs –down to communities, individuals, off-grid & mini-grid **Change of world trade routes and trade flows (fossil fuel rich don’t buy anymore) **Emergence of new alliances (sharing loads, infrastructures, technologies, financing)

16. 3- Why some encourage more than others? More diverse energy actors IEA Forecasts, yesterday, 21 October 2019

17. 3- Why some encourage more than others? More diverse energy actors IEA Forecasts, yesterday, 21 October 2019 Distributed PV installed capacity +150% in 6 years (+300 GW) • BUT Potential of rooftop PV Within this reduced cost path is x16 times more (= 9,000 GW)

18. 4-Main challenges of these energy transition(s)? Several Basic dimensions (Argentin diversity) *Reducing fossil fuel emissions - Increasing energy efficiency of fossil fuel usage (investment + asset life duration) - Substituting gas to coal - Decarbonizing fossil fuels (CCS – CCU) **Greening electricity - Cost is not anymore a barrier to choice RES (IEA; Lazard investment bank; Irena)

19. 4-Main challenges of these energy transition(s)? - Cost is not anymore a barrier to RES choice (Lazard investment bank, Nov. 2018)

20. 4-Main challenges of these energy transition(s)? - Cost is not anymore a barrier to RES choice (Irena, May 2019)

21. 4-Main challenges of these energy transition(s)? **Greening electricity Levelized Cost Of Energy is not anymore a barrier to RES choice But - System Value (Texas 125% average wholesale; California 75%) • Balancing the variability of RES <> increasing system flexibility (with gas CCGT? Or Gas peaking? Or storage and demand response?) • Adapting grids (‘Fit & Forget,’ or ‘Flexibility’), markets (Equilibrium shifting to realtime) ***Electrifying energy usage (to green them) - Heating & Cooling - Transport (electrical mobility >EVs> Florence School Global in New Delhi 5th November) - Industry processes > Energy Transitions Commission report “Mission Possible” for harder to abate sectors Climate neutral by 2050: cement, steel, plastics, heavy road transport, shipping, aviation - Hydrogen for chemistry?

22. 4-Main challenges of these energy transition(s)? • Energy Transitions Commission report “Mission Possible”: Total costs 0.5% GDP (EU: Euro 100bn a year – Euro 200 per capita) • Green steel approximately US$180 on price car. • Green shipping <1% price imported pair of jeans. • Low-carbon plastics 1 US cent on bottle of soda. • Heavy-duty transport, electric trucks & buses: either battery or hydrogen fuel cells likely cost-competitive by 2030 • Shipping and aviation, liquid fuels likely preferred option for long distances but can be made zero carbon by using bio or synthetic fuels • In industry, more efficient use of materials + increased recycling & reuse within more circular economy could reduce emissions by 40% globally –more in developed economies – with greatest opportunities in plastics & metals.

23. 4-Main challenges of these energy transition(s)? • Energy Transitions Commission report “Mission Possible”: Total costs 0.5% GDP (EU: Euro 100bn a year – Euro 200 per capita) Across all sectors of the economy: • Direct & indirect electrification (through hydrogen) to play significant role in most sectors of industry & transport, leading sharp increase power demand: x4-6 times from today’s 20,000 TWh to 100,000 TWh by 2050. • Hydrogen use increases dramatically (x7-11 times by 2050), with 2 routes to zero-carbon hydrogen: electrolysis (likely to dominate in long term) and steam methane reforming (natural gas + CCS).

24. 4-Main challenges of these energy transition(s)? ** ** Reducing energy needs (= increasing energy efficiency) (I do not expand) • Building retrofitting • Smart buildings & smart devices • Circular economy ** *** Agriculture & Human food *** *** Human & Social Transition for fossil fuel regions & countries (Germany, Euro70bn) *** *** * Financing Surprisingly it is not seen as the most problematic Growing understanding that LT value of assets and of invested money is to be greatly impacted tomorrow >> so need to act before 2015 Governor of BoE Mark Carney: > $20,000bn of assets at Climate Threat 2019 IMF Head Christine Lagarde: to exclude Fossil Fuel from CBanks eligible assets? 2019 CEO World Bank at “Global Commission on Adaptation” > Today at IMF Head

25. 4-Main challenges of these energy transition(s)? *** *** * Financing Green Finance, Green Bonds Euro already 200bn in 2019 (~ 3% World Bonds) Far from $6,000bn a year for 2°C (7% today world GDP according to IPCC) But the good questions are asked. Issues: - defining Green Bonds (EU works on it), - labelling Green Funds (only 400 labelled on 60,000 in EU), - pricing seriously Carbon All of it is on the European agenda (and on BloombergNEF’s agenda)

26. 4-Main challenges of these energy transition(s)? *** *** * Financing: Green Bonds

27. 4-Main challenges of these energy transition(s)? *** *** * Financing: Total Green or Sustainable assets make around S31,000bn (Up +34% from 2016)

28. 5- Opportunities for the citizens? Humans did many energy transitions Producing fire; domesticating ox, donkey, camel, horse, etc. To coal; oil; gas What’s new today or tomorrow? IRENA Geopolitics Renewables are distributed; new actors will emerge IEA Forecasts Rooftop PV becomes irresistible; already 25% of Australians; 1.5m Germans; Indian farmers equipped with PV + PV-driven water pumps; African villagers renting PV rooftop as “Pay2Go” My own work: 2 big waves converging *RES distributed resources with lower entry size & costs (for individuals, business, or communities) **Digitalisation of trade (# activation of “retail-size” units: Peer2Peer; Platforms; Blockchains) and (#asset fleet managers: EV fleets; ZNC Buildings; mini-grids for allotments; IoT)

29. Today, Tomorrow: An ocean of changes… Energy Transition: What’s new… & Beyond? ??

30. A sea of opportunities for citizens & communities… Fasten your seat belt: Take-off!

31. And the 5th November FSR Global settles in New Delhi…

32. The 5th November FSR settles in New Delhi… Daniel… Fasten your seat belt: Take-off!

33. Muchas Gracias… for your attention Email contact: jean-michel.glachant@eui.eu Follow me on Twitter: @JMGlachant near to 57,000 tweets My web site: http://www.florence-school.eu