TODAY’S STUDY: HOW THE WORLD IS DOING AT BUILDING NEW ENERGY

In the television program House, the brilliant Dr. House’s damaged leg and cane-enabled gait are metaphors for his profound emotional flaws. His behavior makes for compelling drama and striking dark humor though it creates what would be torment if those around him were real people instead of dramatic personae.

Like House, the Old Energies are brilliant but destructively flawed and, like House, they walk with a cane in the form of subsidies instituted long ago when they were vital to the nation’s growth. Coal is protected from paying for the pollution it inflicts on the environment, oil and gas are protected from their price volatility and nuclear energy is indemnified by governments against the devastation it sooner or later causes.

The New Energies are like the residents working under House, unique in potential and highly capable if not entirely ready to bear the entire burden their elder carries. Like the incipient synergistic powers of this good earth’s sun, wind, deep heat and flowing waters, the residents work best when working together.

Analogous to the New Energies’ federal supports are the protections from House his interns get from hospital administrator Dr. Lisa Cuddy and, like that protection, the New Energies’ federally-administered incentives are arbitrarily granted or withdrawn depending on the flux of the relationship between their administrator and the crippled elder tyrant.

Like watching an episode of House, it is both infuriating and amusing to hear defenders of the Old Energies complain about the incentives granted to the New Energies. The Old Energies get five times the federal money the New Energies get, though they long ago emerged into vulgar profitability and outgrew any justification for burdening taxpayers.

As the report from the International Energy Agency highlighted below makes clear, the New Energies are growing impressively but may not be able to assume their rightful place in the world's energy mix until governments take away the subsidy cane that is the Old Energies' unfair advantage.

After all, everybody knows that while the residents occasionally get protection from administrator Cuddy as they mature and emerge into their own, House wouldn’t be around if her self-destructive emotional addiction to him didn't drive her to protect him and hide the damage he does.

Clean Energy Progress Report; IEA Input to the Clean Energy Ministerial
April 2011 (International Energy Agency)

Key findings

• Clean energy technologies are making clear progress globally, but fossil fuels continue to outpace them. More aggressive clean energy policies are required, including the removal of fossil fuel subsidies and implementation of transparent, predictable and adaptive incentives for cleaner, more efficient energy options.

• Thanks to favourable policy support, solar PV and windpower are achieving strong growth. However, achieving sustainable energy goals will require a doubling of all renewable energy use by 2020. There are also signs that policy support is weakening due to government austerity plans. Instead of eliminating successful policies, governments need to put in place dynamic schemes that respond to technology markets.

• For the past decade, coal has been the fastest-growing global energy source, meeting 47% of new electricity demand. Extensive deployment of CCS is critical to achieve climate change goals: around 100 large‐scale projects are needed by 2020, but countries must accelerate their policy and funding support for the large‐scale CCS demonstrations.

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• Progress has been made to transform the market for some key energy‐efficient products, including compact fluorescent light bulbs. However, in the buildings and industry sectors, significant under‐investment remains, resulting from an array of market financial, information, institutional and technical barriers. Much more policy effort is needed to capture the near term profitable and low cost energy savings opportunities.

• Biofuels have shown steady growth, but still only represent 3% of global road transport fuel consumption. A sound policy framework is required to ensure the sustainable growth of biofuel production by ten‐fold to reach climate change targets in 2050. Commercialisation of advanced, sustainable biofuels will be particularly critical to meet targets, and will require significant expansion of production capacity.

• Electric vehicles are poised to take off. Major economies have announced targets that together would reach about 7 million vehicle sales per year by 2020. If achieved, this will result in over 20 million electric vehicles on the road by that year, taking into account all sales over the next 9 years. However, this will only account for about 2% of light‐duty vehicle stocks worldwide; continued strong growth after 2020 will be important to ensure market transformation. Fuel economy of conventional light‐duty vehicles has also been improving recently, but will need to improve faster to achieve a global target of 50% improvement by 2030 compared to 2005 levels.

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• While nuclear capacity has remained nearly flat for the past decade, countries are currently constructing 66 nuclear reactors that should add 60 Gigawatts by 2015. However, the recent earthquake in Japan and resulting damage have led countries to review nuclear safety and investments across the board. As a result, nuclear expansion is likely to be slower than planned.

• An increased level of systems thinking is needed to integrate the broad range of individual clean energy technologies into the energy system. Increased attention and resources are required to expand smart grid pilot projects on a regional level.

• International collaboration is key to ensuring that momentum is maintained and gaps are addressed. The Clean Energy Ministerial offers an unique opportunity to accelerate technology deployment through government and corporate pledges and tracking progress toward shared global energy goals.

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Growth in clean energy has been strong ... but needs to expand and accelerate

Clean energy technologies came into their own during the last decade. Implementation of energy-efficiency (EE) measures is improving. Renewable energy has seen 30% to 40% growth rates in recent years, due to market‐creating policies and cost reductions. Carmakers are releasing the first set of a new wave of electric vehicles (EVs) and are attracting customers.

But formidable challenges remain. These developments show that many clean energy technologies are gaining momentum. However, not all of the news is good. Despite the tremendous growth seen in this sector, demand for traditional fossil‐based energy has outpaced demand for clean energy…To achieve the clean energy revolution that has been called for, the current double digit growth seen by renewable energy must be sustained for the long term. Energy‐efficiency efforts must provide the right incentives for utilities, industry and consumers to invest, and must verify savings through improved monitoring and reporting. Advanced biofuels and electric vehicles must ramp‐up dramatically. Government funding commitments to large‐scale demonstrations for CCS and smart grids must be allocated. In short, achieving a sustained clean energy pathway on the global scale will require significant scale‐up and acceleration.

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Energy efficiency

Energy efficiency is often referred to as an important fuel of the future. By reducing energy demand, improvements in energy intensity are estimated to deliver 30% of primary energy consumption. Public policy has successfully transformed markets for an array of energy‐efficient products, including compact fluorescent light bulbs (CFLs), refrigerators, motors and key building components. These successes have been delivered by a set of well‐designed and implemented energy‐efficiency policies, including building codes, standards and labelling (S&L), energy certification schemes and utility programmes. Nevertheless, significant under‐investment in energy efficiency globally results from an array of market, financial, information, institutional and technical barriers. More effort is needed to advance integrated building design and performance, strengthen appliance standards globally in all markets, improve monitoring and verification of labelling and certification schemes, incentivise utilities to invest more in energy efficiency, and provide a competitive framework for industry to invest in the best available technology (BAT).

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Higher-efficiency coal use and CCS

For the past decade, coal has been the fastest‐growing energy source, meeting 47% of new electricity demand globally. This growth has been accompanied by a move toward more efficient, cleaner coal plants worldwide. However, to meet global climate change goals at lowest cost, extensive deployment of CCS is critical: around 100 large‐scale CCS projects are needed by 2020, and over 3 000 by 2050. While there are over 70 projects currently planned, it is uncertain how many of them will be realised. The currently available public funding for large‐scale demonstration projects (USD 25 billion) is not enough. Delays in funding decisions are caused by a number of factors that governments must address, including the high cost of CCS, lack of public support for CCS, and a need for adequate regulatory frameworks for CO2 transport and storage.

Nuclear power

While nuclear capacity has remained nearly flat for the past decade, 15 countries are currently constructing 66 nuclear reactors that together should add 60 GW of capacity by 2015; these and other countries have ambitious plans to further expand global nuclear capacity by 2020. However, the recent earthquake and tsunami in Japan, and the resulting damage to nuclear reactors, will lead many countries to review the safety and siting of their existing and planned nuclear plants. As a result, nuclear expansion may be slower than previously announced plans suggest.

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Renewable energy

Renewable energy market success has been driven by policy support, which has grown considerably in the last decade. Policies continue to evolve to address market developments and reduce costs. In the case of solar energy, at least ten countries now have sizeable domestic markets. Both utility‐scale and rooftop solar photovoltaic (PV) generation have seen a major scale‐up in the past few years, resulting from market‐creating policies that led to an extraordinary decline in the cost of PV modules. Wind power also experienced dramatic growth over the last decade; global installed capacity at the end of 2010 was around 194 GW, up from 17 GW at the end of the year 2000.

Despite this good news, worldwide renewable electricity generation since 1990 grew an average of 2.7% per year, which is less than the 3% growth seen for total electricity generation. While 19.5% of global electricity in 1990 was produced from renewable sources, this share fell to 18.5% in 2008. This decrease is mainly the result of slow growth of the main renewable source, hydroelectric power, in OECD countries. Achieving the goal of halving global energy‐related CO2 emissions by 2050 will require a doubling (from today’s levels) of renewable generation by 2020. Non‐hydro renewables will have to increase at double‐digit rates; wind power must see an annual average growth rate of 17% and solar power 22%. While these levels have been exceeded in the past few years, this level of high growth must be sustained for the long term.

Biofuels

Biofuels have seen steady growth during the last 10 years. Driven by policy support, most prominently in Brazil and the United States, and more recently in the European Union and Southeast Asia, global production grew from 16 billion litres in 2000 to more than 100 billion litres in 2010. Further, many countries are accelerating their investments in advanced biofuels, with large‐scale demonstration plants under construction in many regions. Even with this growth, biofuels represented around 3% of global road transport fuel consumption in 2010. To stay on target, governments and industry will have to ensure the large‐scale deployment of sustainable biofuels. More specifically, for biofuels to reach in 2050 a 27% share in total transport fuel, their production will need to increase more than tenfold over the next 40 years.1 It will be particularly important that advanced biofuels reach commercial scale in the next 10 years, with a 30‐fold capacity increase until 2030.

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Electric vehicles and vehicle efficiency

Major economies have announced targets that together would reach about 7 million vehicle sales per year by 2020. If achieved, this will result in over 20 million electric vehicles on the road by that year, taking into account all sales over the next 9 years. There has been a strong growth in the number of new car models announced, and more importantly, models being sold. Most of the large markets now offer incentives and support schemes to accelerate consumer adoption. However, vehicle sales are only beginning, and even if targets are met in 2020, this will still only represents 2% of vehicles. It will take even longer sustained efforts to achieve substantial impacts on light‐duty vehicle (LDV) energy use and CO2 emissions.

To ensure successful ramp‐up of EVs, governments must accelerate grid integration through standards development and pilot programmes that invest in recharging infrastructure. Vehicle efficiency continues to improve, with average global new LDV fuel economy reaching about 8 litres per 100 km (L/100km). Planned tightening of fuel economy standards in most major economies should accelerate this trend. In order to lock in the long‐term improvements, and reach the Global Fuel Economy Initiative (GFEI)2 target of halving new LDV fuel use by 2030, these standards must be extended beyond 2020 and other countries must adopt strong fuel economy policies.

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Smarter, more ambitious strategies are needed

The last decade has seen some renewable energy technologies become competitive with conventional energy technologies. Most clean energy technologies, however, still cost more than incumbent fossil‐based technologies that have received (and continue to receive) subsidies from government in the form of tax credits, infrastructure development and funding for large‐scale demonstration. Fossil fuels currently receive USD 312 billion (2009) in consumption subsidies, versus USD 57 billion (2009) for renewable energy (IEA, 2010g). The competitiveness of clean energy technologies lags behind fossil‐based technologies due to their level of maturity, as well as the lack of a price for external environmental impacts, including greenhouse‐gas (GHG) emissions. Moreover, the deployment of technologies is hampered by non‐economic barriers such as administrative burdens, grid integration issues, lack of awareness and public acceptance problems. Clean energy technology deployment will therefore require a concerted public and private commitment, supported by more ambitious policies. It is clear that setting a CO2 price will not be enough to achieve the revolution. Governments need to take action on each of the following policy measures:

• Increase public investment in innovation through support for research and development (R&D), as well as large‐scale demonstration.

• Implement smarter energy policies, including removing non-economic barriers and providing transparent, predictable and adaptive incentives for cleaner options.

• Facilitate the uptake of clean energy technologies into energy systems by supporting integration of technologies such as smart grids.

• Phase out subsidies for fossil fuels.

• Establish a price on CO2 emissions.

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A growing body of experience shows that a clean energy revolution can be achieved through a comprehensive policy approach. Over the last two decades, several countries have achieved dramatic changes in their energy markets. A key to success has been to create a strategic, comprehensive approach that communicates to the public the energy security, economic growth and environmental benefits of clean energy investment.

Successful national strategies also work with the private sector to identify a set of priority technologies, and provide a package of co‐ordinated, predictable policies to accelerate technology development. This involves designating lead institutions, providing sustained funding and reducing duplication by improving lines of communication and co‐ordination. It also requires providing smart interventions along the technology development chain from research to demonstration, large‐scale integration and market commercialisation, and pulling technologies into the market using targeted policies…

Other countries benefit in a number of ways from the success of these pioneering countries: testing policy tools and approaches; creating a small initial market for technologies, which sets a path for future cost reductions; and exporting their expertise and technology to the rest of the world. This success required a high‐level political commitment, private sector support and, in most cases, a substantial commitment of funds from governments or electricity customers. In the case of renewable electricity, several countries are currently revising policies and tariff rates, given unexpected growth that has resulted in escalating policy cost. However, it is clear that by building on these successful national examples, countries can accelerate technology learning and diffusion, achieve cost reductions and become world leaders in clean energy technologies.

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Recommendations for energy ministers

Make the Clean Energy Ministerial an international forum for commitment, action and shared learning

The reality of the clean energy challenge is such that individual and isolated actions will not enable the rapid and large‐scale transition required. Increased collaboration among countries, stakeholders and initiatives that seek to achieve the shared benefits of clean energy technology deployment is imperative to rapidly scale‐up investment, replicate the positive steps that are being taken, and enhance the cost‐effectiveness and efficiency of action. Several examples demonstrate that when one (or more) country sets a pioneering pathway in clean energy technology development, it increases the potential for domestic scale‐up, with associated cost reductions in the technology. This shared learning needs to accelerate if countries want to remain on track to realise the full potential of clean energy technologies. One strategy would be to create a forum within the Clean Energy Ministerial for common pledges to develop new markets for clean energy technologies.

The Clean Energy Ministerial provides a unique opportunity for governments to translate dialogue into concrete action, in order to collectively enhance energy technology development and deployment. Through agreement to a set of far‐reaching and ambitious goals, this group of key governments can make a significant difference to the global deployment of clean energy technologies. The initial successful establishment of the CEM process, with its related technology initiatives, is a positive step that clearly demonstrates the shared interest in learning together and in accelerating the transition to clean energy. There are a number of actions that the CEM could promote, in close collaboration with existing international technology initiatives…

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Clean energy ministers should:

• Utilise the regular CEM meetings to make shared government and corporate pledges to invest in targeted clean energy technologies, through the launch of new financial mechanisms, targeted policies and/or procurement. Track progress in fulfilling these pledges.

• Working with the IEA, collect and share data on technology deployment, policy implementation and investments in clean energy RD&D.4 Initiate discussion among CEM countries on a common set of data that will be collected on a regular basis, and provide training and other support to countries that require it. Utilise CEM meetings as an opportunity to provide updated data on deployment, policy implementation and RD&D investment thereby providing the evidence base for policy announcements and activities.

• Identify the most promising products and technologies for common standards and develop projects to map existing harmonisation efforts in specific technology areas; develop harmonised approaches based on these efforts.

• Engage the corporate sector on best practices in energy technology RD&D policy and innovation. Create a mechanism through which companies can report RD&D expenditures in a manner that maintains their competitiveness while offering government guidance as to gaps and priorities for government spending. Explore ways to create innovative financing mechanisms that reduce the cost of clean energy financing.

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Continue to increase public investment in technology innovation

Governments have a clear role in technology innovation. Technologies ranging from rail transport and nuclear energy to the Internet and global positioning systems (GPS) were all invented by government supported researchers, developed with public funding or first deployed through government purchasing and incentives. Public investments are needed to train the human capital and build the enabling infrastructures required for the widespread deployment of many technologies.

In 2009, governments recognised that clean energy is a driving force for economic recovery. A number of major economies invested recent stimulus funds in clean energy RD&D projects such as high‐speed rail, CCS demonstration projects and smart grid pilot projects. As a result, public sector energy RD&D in 2009 rose to its highest level ever, eclipsing the previous high achieved during the oil crisis of the 1970s. Annual global public RD&D spending on energy in CEM countries now exceeds USD 21 billion. This is likely the minimum level needed to achieve the rate of technology deployment required to attain climate change targets (IEA, 2010c). However, indications for 2010 show that spending levels once again dropped – marking the end of stimulus spending –and were closer to 2008 levels.

To achieve the necessary clean energy targets, higher spending levels must be sustained over the long term and spending priorities need to shift. During the last decade, countries spent USD 56 billion on nuclear energy research and USD 22 billion on fossil research, but only USD 17 billion on renewable energy and energy‐efficiency research combined.

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Clean energy ministers should:

• Realign government subsidies for fossil fuels to support clean energy.

• Use market mechanisms, such as carbon taxes or proceeds from GHG auctions, to generate dedicated funding for RD&D.

• Provide incentives for greater private sector investment in clean energy through tax credits and market‐creating mechanisms, and through innovative public/private partnerships.

• To address the impact of continued fossil fuel use, provide immediate allocation of announced funds for large‐scale CCS demonstration projects.

Unleash the potential of energy efficiency

Global energy intensity is improving but leaves no room for complacency; much cost‐effective energy‐efficient potential is not yet tapped and energy demand is growing. Energy efficiency can and should be improved across all sectors. Carbon prices are essential but will not alone address all the barriers to energy efficiency, other policies targeting energy efficiency are needed.

Clean energy ministers should:

• Develop policy packages that target energy‐efficiency actions in all sectors and strive for sustained efficiency improvements.

• Use the CEM process to track and deliver more detailed data on energy‐efficiency technology deployment and RD&D spending to identify priorities for action and collaboration.

• Use the CEM process to identify significant end‐use technology areas as priorities for improved energy‐efficiency market transformation, including domestic cold appliances, domestic lighting, electric motors, air conditioners and network standby power, among others.

Sustain the momentum of innovation in renewable energy

Several countries have successfully triggered the sustainable, large‐scale deployment of renewable energy technologies. This success has been the result of smart support policies that these leading countries have developed and applied. Their experience points to a number of key design principles that policy makers should follow to arrive at “investment grade” policies. If policy makers adhere to these basic design principles, the vast potential renewable energy technologies have to meet global energy needs can be unlocked.

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Clean energy ministers should:

• Remove non‐economic barriers, such as administrative hurdles, obstacles to grid access, poor electricity market design, lack of information and training, and social acceptance issues.

• Develop adaptive, predictable and transparent support frameworks to attract investment.

• Develop and implement transitional incentives guaranteeing specific – but decreasing – levels of support as different technologies advance in their degree maturity and move towards market competitiveness.

• Give due consideration to the impact of large‐scale penetration of renewable energy technologies on the overall energy system, especially in liberalised energy markets, with regard to overall cost efficiency and system reliability.

• Expand the use of renewable energy for off‐grid and mini‐grid applications.

• Ensure synergies with climate change policy frameworks.

Foster electric vehicle market introduction

In order for EVs to succeed, governments must make commitments to building sustained markets that last for at least the next 10 years. This should include price incentives for consumers (and adequate and stable funding to pay for these incentives over at least the next 5 years, followed by a phase‐out period); support for construction of adequate recharging infrastructure; working with cities to ensure cohesive regional and national systems; funding for RD&D, including pilot programmes and consumer education campaigns.

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Clean energy ministers should:

• Ensure that sufficient recharging infrastructure is put in place not only for the initial wave of vehicles (e.g. a few thousand within a country, through 2012) but also the second phase of market ramp‐up (e.g. potentially up to hundreds of thousands or even a few million vehicles, through 2015‐20).

• Send clear signals that vehicle price incentive support will not suddenly disappear. At the same time, governments need to avoid exposure to large potential subsidy costs. One option is to allocate an annual limit on incentive expenditures, and keep that amount each year through 2020, reducing the amount per vehicle as sales rise. This has the benefit of automatically lowering the support level per vehicle as sales increase.

Develop integrated clean energy systems

The year 2000 marked an important historical moment, as the share of global population living in urban environments surpassed 50%. This proportion will continue to grow over the next few decades. The energy infrastructures on which communities depend will therefore need to be adapted and upgraded to meet increasing demands for energy services. This provides the opportunity for local government leaders to encourage increased deployment of clean energy systems and gain the benefits that they offer.

The development of smart grids is an essential step to enable and integrate the clean energy technologies needed to support demand, supply and transport. Smart grids are needed to provide the information and tools to allow electricity consumers to decrease costs and increase efficiency of energy use. Several concepts are emerging that extend the reach of the smart grids from electricity systems to broader energy and societal contexts. One of these is the smart community or smart city.

A smart community integrates energy supply and use systems within a given region in an attempt to optimise operation through customer energy management while also allowing for maximum integration of renewable energy resources, from large‐scale wind farms to micro-scale rooftop PV systems. Smart communities include existing infrastructure systems, such as electricity, water, transportation, gas, waste and heat, as well as future systems such as hydrogen and EV charging. The goals of such integration through the use of information and communication technology (ICT) include increased sustainability, security and reliability, as well as societal benefits such as better services, reduced capital investment and job creation (IEA, 2011c).

Clean energy ministers should:

• Commit to scale‐up existing small‐scale smart grid pilot efforts to carry out several regional large‐scale and system‐wide demonstrations that identify technology, regulatory and customer solutions.

• Provide assistance to local governments to develop tailored approaches that engage and educate energy customers by supporting technologies, developing regulations and helping industry to create business models for smart grids roll‐out.