IEA’s Net Zero Pathway – Transformational Opportunity or Illusory Policy Roadmap?
By Dr. Tilak Doshi, Energy Economist and Author
The International Energy Agency (IEA) is an intergovernmental organization that was established in 1974 to advise OECD members – most of the richest countries in the world – on matters pertaining to stability of oil markets. Not surprisingly, in the wake of the oil price shock of 1973, its stated mandate at its founding was to mitigate the impacts of oil supply disruptions. Reflecting the evolution of its key members’ energy policy concerns – primarily its key EU members and the Biden administration – its mission has expanded in recent years to emphasize the promotion of renewable energy technologies.
In mid-May of this year, the IEA published its “Net Zero by 2050” report. Described widely as a “bombshell report”, among its high points it calls for an end to all new investments in fossil fuels (coal, oil and natural gas) from 2021. Not surprisingly, this policy recommendation elicited widespread media coverage and strong reactions from various observers. The latter ranged from effusive support from those already convinced that a “climate emergency” is upon us to incredulity from others who hold less alarmist views of climate change. For instance, the Saudi oil minister mocked the report, calling it a sequel to “La La Land” to emphasize its sheer impracticality. The executive chairman for the African Energy Chamber found the report irresponsible: “A ban on fossil fuel production would bring about the collapse of many carbon-dependent African governments.”
The Net Zero Roadmap
The 200-plus page report identifies three key milestones, applicable worldwide, requisite to its “net zero by 2050” vision: an immediate end to investments in all new fossil fuel development; a ban on all internal combustion engine vehicles by 2035; and a zero-emission power sector by 2040. Under what it calls “key pillars of decarbonisation of the global energy system” it lists energy efficiency, behavioral changes, electrification, renewables, hydrogen-based fuels, bioenergy and carbon capture, utilization and storage technologies. Underlying this “roadmap” is the presumption that rapid innovation, as directed by policy-makers, will make an array of technologies commercially viable in the imminent future if not already so. Renewable energy, it is claimed, is already so cheap that mandating a post-hydrocarbon world that no longer needs fossil fuels within the next two or three decades is a riskless proposition.
The IEA hails its report as “the world’s first comprehensive study of how to transition to a net zero energy system by 2050 while ensuring stable and affordable energy supplies, providing universal energy access and enabling robust economic growth”. Its roadmap, it proclaims, provides “a cost effective and economically productive pathway” to a “resilient energy economy dominated by renewables like solar and wind instead of fossil fuels”. “Our roadmap,” the IEA states, “shows that the enormous challenge of transforming our energy systems is also a huge opportunity for our economies, with the potential to create millions of new jobs and boost economic growth.”
Reactions to the IEA Report
For many energy practitioners, both in government and the private sector, the IEA’s recommended policies are more in keeping with the agenda of the radical fringe of environmental activism. Unsurprisingly, the IEA’s report was met with skepticism, if not derision, by oil and gas industry executives and analysts. Policy-makers in IEA member countries such as Japan and Australia were no less incredulous. Just one day after the publication of the IEA Net Zero report, a major wire service ran a widely cited article headlined “Asia snubs IEA’s call to stop new fossil fuel investments”. A deputy director of international affairs at Japan’s Ministry of Economy, Trade and Industry (METI) said the government has no plans to immediately stop oil, gas and coal investments. According to the Philippines’ energy secretary, the energy transition should be fuel and technology neutral. Coal will remain the dominant power source in the Philippines for decades to come, even after a ban on new coal plant proposals.
At a meeting organized by the IEA before the publication of the report, India’s minister of Power, New and Renewable Energy went off-key, probably to the consternation of many in the audience, and called the “net zero by 2050” mantra pushed by the EU and the U.S. under the Biden administration “pie in the sky”. Compared to the Saudi oil minister’s outright derision in calling the IEA report “La La Land” fiction, the comments by Russian Deputy Prime Minister Alexander Novak were a little more restrained. If the world were to follow the International Energy Agency’s controversial roadmap, he said that “the price for oil will go to, what, $200? Gas prices will skyrocket.” The OPEC secretariat warned that the IEA’s net zero pathway would add to oil price volatility. The group remarked that “the claim that no new oil and gas investments are needed post-2021 stands in stark contrast with conclusions often expressed in other IEA reports”.
Events since the publication of the IEA report seem to bear out OPEC’s view. As the world emerges from the economic ravages of the pandemic lockdowns, early signs are already apparent. Energy demand has rebounded as COVID-19 vaccines roll out, governments ease lockdowns and passenger and freight traffic surges. Global oil consumption is now on track to reach pre-COVID-19 levels
by the first quarter of next year. The bellwether Brent crude price is now at multiyear highs of over $70 per barrel. The average Brent price for 2020 was just under $42 per barrel. The U.S. now has the highest gasoline prices since 2014. The Biden administration now faces the supreme irony of calling on the OPEC+ cartel to open its oil taps while continuing in its quest to shut down domestic oil and gas production in the name of fighting climate change. Indeed, just weeks after calling for a complete shutdown in new oil and gas investments, the IEA called for OPEC to increase oil supplies to alleviate the upward pressure on oil prices. IEA also called upon coal producers to meet growing global electricity demand, projecting a nearly 5 percent increase in coal generation this year, and another 3 percent in 2022 – “potentially reaching an all-time high”.
The Credibility of IEA’s Net Zero Roadmap
The IEA report calls for the most fundamental transformation of the global economy since the advent of the Industrial Revolution over two centuries ago. Unlike the Industrial Revolution which was wrought by entrepreneurs and amateur engineers, the IEA’s call for “net zero” is perceived as a top-down, bureaucrat-determined process driven by punitive anti-fossil fuel mandates and subsidies for favored “renewable” technologies. In essence, the IEA suggests that by 2050, its roadmap will allow policy-makers to replace a global energy system that has developed over the past two centuries by the innovative actions of countless enterprising individuals and companies. The IEA betrays the fatal conceit of planners who believe they can determine what will be successful and what not, despite the lessons of history.
Perhaps most damaging to the credibility of IEA’s net zero report is the obvious question most objective observers would ask: if it is true that drastically cutting back on fossil fuels is consistent with higher economic growth and increased productive employment, why do policy-makers need to force industries along the net zero pathway? Surely, if replacing fossil fuels with much cheaper wind and solar energy and electric vehicles promotes growth and employment, then wouldn’t the natural course of economic development lead to just such an outcome? Why wouldn’t China, India and other developing countries just allow unhindered private-sector investments to bring about such “win-win” outcomes? Why wouldn’t countries immediately adopt the IEA’s roadmap?
The presumption that intermittent and weather-dependent renewable energy is already cheaper than coal, oil and natural gas and hence merely needs a level playing field in policy terms to compete has been a staple of the “net zero” advocates. However, the fact remains that renewable energy businesses count on a significant part of their revenue streams from policy supports such as feed-in tariffs, subsidies including production tax credits and mandatory renewable portfolio schemes. The very foundation of the business model for renewable energy is continued government support.
For energy economists it would appear that the IEA report is remarkably lacking in analysis of the real world constraints on replacing fossil fuels. Yet, even more concerning is the absence of any assessment of the impact of its draconian anti-fossil fuel policy recommendations on the world’s poor, constituting over 80 percent of the global population, who have limited access to energy. The charge of climate imperialism on the part of the IEA is a serious one. This was best put across by India’s power minister who commented, “you have 800 million people who don’t have access to electricity. You can’t say that they have to go to net zero, they have the right to develop, they want to build skyscrapers and have a higher standard of living, you can’t stop it.”
Non-profit organizations invariably reflect the priorities of their funding members, and the IEA is no exception. The IEA’s funding is primarily from the U.S. and key EU members. Hence it is no surprise that it faithfully shares the “climate emergency” predilections of the Biden administration and Western European governments. However, by being a champion of “green growth” on behalf of its paymasters, the IEA is at risk of losing all credibility as an objective advisor of energy policy for its OECD members and other stakeholders.
Dr. Tilak K. Doshi is an energy economist with over 30 years of experience working with oil and gas companies and energy policy think tanks. He is the author of “Singapore in a Post-Kyoto World: Energy, Environment and the Economy”.