IEA to focus on energy security and climate change
The International Energy Agency took a much higher profile in world energy affairs under Claude Mandil. With a new executive director, Nobuo Tanaka, at the helm, what will be the agency's priorities? Interview by Alex Forbes
Q When the IEA was established in 1974, its main concern was security of oil supply. Today it concerns itself with security of energy supply as a whole, protection of the environment, market liberalisation, infrastructure investment, technology, energy poverty and so the list goes on. What will be the priorities during your term in office?
A In the recent IEA ministerial meeting there was a lot of discussion about the direction of the agency. One of the issues is bigger and bigger non-member consuming countries such as China and India. The IEA started with an oil-security focus by enabling the use of the joint strategic stock draw-downs. But if big consuming countries do not work with us co-operatively, the stockpile measures may not be as effective. We need to engage these large consuming countries to maintain our influence on oil security. So one direction is to strengthen our core oil-security activity.
Then there is the issue of increasing natural gas dependency. And it's not only oil and gas – I feel we have to talk about comprehensive energy security.
Not using energy increases security. So energy efficiency and conservation are on our agenda. For that we have to become more demand-side oriented. We are now working on energy efficiency in several sectors, which we have been asked to do by the G8.
Energy efficiency also means emitting less carbon dioxide. So this works beautifully both ways: it enhances energy security as well as responding to climate-change requirements. We have been developing indicators, indexes of energy efficiency for the different sectors. We have already reported back to the St Petersburg G8 summit and the Heiligendamm summit. Next will be the Hokkaido summit in Japan in 2008. My role will be to present the final report on this initiative.
Q Many people believe we have entered an era of structurally high energy prices. Do you share this view?
A Structurally speaking, significant economic expansion in Asia and the resilience of the economy mean that in the medium to long run the demand-supply situation is growing tighter and tighter. The IEA's position is that we clearly need investment in all energy segments – upstream, downstream, transportation and electricity generation. The World Energy Outlook last year said that just above $20 trillion of investment is necessary between now and 2030. So yes, we expect that the market to become tighter and tighter.
Q It has been said that the IEA was initially established as an antidote to Opec. Is that still part of the IEA's role today?
A The market structure has changed and it's not only about oil. We are concerned about gas, about nuclear and about other alternative-energy sources. We have to think comprehensively.
I visited Mr [Abdullah] El-Badri, the secretary-general of Opec, during my first week in office to talk about the market situation and prospects. We share lots of similar concerns: how we see the financial market impacts; what the long-term prospects are for China and India; what the effect of climate change will be; how cost inflation is affecting upstream costs; and how to cope with the scarcity of engineers in the energy sector.
Our appreciation of the present market situation may sometimes differ, but our view of the future is very similar.
Q Gas plays an increasing role in the energy mix and there has been talk of the emergence of a gas Opec. Big producers such as Russia, Algeria, Qatar and Iran are exploring this idea through the Gas Exporting Countries' Forum and other channels. How concerned is the IEA that producers will collaborate to inflate prices artificially?
A The IEA's view is clear – any kind of intervention in pricing, such as cartelisation, is not a good thing. Our basic concept is: leave it to the market. We don't know how they could do it because gas is different from oil. It's mainly utilised for electricity generation and there are alternatives such as coal, nuclear or even oil. Also, gas is a very long-term investment, with long-term contracts. It's not a commodity-type operation like the oil market. But we are watching the situation carefully.
Q What action could the IEA take?
A There are lots of ideas that could be developed if necessary. For example, the IEA's emergency plan for oil is just for physical disruption to oil flows. But in some countries, oil-burning power plant could be a substitute for gas in case of emergency. At this point, however, we cannot use our oil-emergency plan for gas disruption.
Q At the G8 summit in 2005, the IEA was asked to formulate recommendations to reduce greenhouse-gas emissions caused by the production and consumption of energy. How is that work progressing? And what kind of policies and technologies does the agency believe will be effective?
A First, we have to have a new energy-technology plan open to all possible alternatives: renewables, nuclear, cleaner gas, clean-coal technology and carbon capture and storage (CCS). Governments say we need to develop and we need to invest, but research and development (R&D) expenditure in energy technologies has declined.
And new energy production technology is only half of the story. The other half is reducing the amount of energy consumed through efficiency or conservation. That part of the technology is also very important.
A recent IEA publication – Energy use in the New Millennium – clearly shows a deterioration in energy-efficiency improvements in the 1990s. In the 1970s and 1980s there was a 2% a year improvement, thanks partly to high prices. Prices came down and the rate of improvement in energy efficiency halved to a 1% a year in the 1990s.
Under the pressure of climate change, we must double our efforts to achieve energy efficiency in sectors such as industry, transportation, housing and appliances. We have been asked by member governments to identify the best practices in these sectors in different countries and to try to estimate the potential for savings. We will recommend to the next summit meeting in Hokkaido what kind of actions should be taken. Our role is to push the governments and to make implementation happen.
We are recommending lots of ideas, for example, changing incandescent lighting to more fluorescent lighting or bringing down the standby-power use in electric appliances to 1 watt – the 1 Watt Initiative, as we call it. How governments implement these ideas is most important and we are ready to help them to do so.
Q What kind of a response have you had from governments so far?
A Some are already phasing out incandescent lighting. Some have started thinking about the 1 Watt Initiative or fuel-efficiency standards for automobiles or housing. The IEA is monitoring the implementation process and will push further, where needed.
Q The IEA exists primarily to promote the interests of its member countries and yet many of today's energy challenges – particularly those concerning climate change – require a global response. How does the agency resolve this dilemma?
A The G8 has asked us to work with large non-member countries – such as Brazil, China, India and South Africa – to promote energy efficiency, to try to convince them it is to their benefit to make their economic structure more efficient and to introduce technologies, especially related to coal usage. There is a clear understanding that these countries must live with certain future rules for energy efficiency or climate change. There is a good ground for us to work with them to make their economic development sustainable.
Q What about the argument, often put forward by less-developed countries, that industrialised countries had the luxury of reaching their present level of development without being hampered by rules on emission levels. They have a point don't they?
A Sure. We cannot stop their economic development – that's without question. In fact, we welcome their growth. But if we have to attack climate change as a global operation, the main emitters must work together.
Q How important is it to the efforts to mitigate climate change that a price is put on carbon? What is the IEA doing to promote this approach? And do you favour taxes or cap-and-trade mechanisms?
A Without carbon-pricing, certain technologies – especially those related to carbon mitigation, such as CCS – will not fly. They will only be commercially viable if there is a proper price on carbon dioxide. How a price is decided is up to the governments. There is no clear consensus on the methodology. The IEA says it could be by a carbon market, or by a carbon tax or by regulation that forces an implicit price of carbon.
Q What can policymakers do to help the development and commercialisation of new energy technologies? It can be very difficult for new technologies to find their way to commerciality in the kind of time-scales that we really need.
A First, the public sector can do its own R&D – but their efforts declined seriously in the 1990s. They have to go back to their former level of investment. But public-sector investment does not solve everything. Private-sector investment has a role. For that, government can do a lot to create infrastructure and predictable framework conditions for committing to certain energy technologies. Nuclear is one good example.
Q In early 2006, Russia and Ukraine argued about gas price and supply, which led to supplies being cut off for a while to some countries in Western Europe. That had a significant political impact and we are still seeing the effects of that today in attempts to diversify sources away from Russia. Don't incidents of that kind make it difficult to achieve the kind of political consensus needed for energy security?
A There is a good consensus that we need more security. Europe is trying to diversify its sources for gas. I was invited by the Hungarian government to attend a seminar on the Nabucco pipeline. They are trying hard. Nabucco is not an alternative, they say, but a good complement to a pipeline directly from Russia. It could link to other sources, such as Azerbaijan, Turkmenistan or Kazakhstan, in the future if not now. So there is a good discussion about different routes, different sources. And liquefied natural gas is providing another mode of supply. These comprehensively increase the security of Europe as a whole.
Russia always talks about stability of demand. Consuming countries talk about stability of supply. Basically, they are talking about the same thing. We are asking for more transparency on the provider side, while competition in the user side provides the chance of obtaining diversified suppliers.
Q Is it possible China and India may become members of the IEA in due course?
A We have done lots of joint work, seminars, workshops, they sometimes attend meetings and we exchange information. Probably we need to do more on energy stockpiles, energy efficiency, clean-coal technologies and so forth. Eventually, if the IEA members so wish, and if China or India were to so wish, membership could be the ultimate goal of this exercise.
There are technical and legal difficulties on all sides and a consensus among our members would need to be built. We would need a strategic decision because this would bring changes to China or India, but it would also change the IEA and its members. But why not? If that were to become the will of our members and of China and/or India, where there is a will, there is a way.