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11. Global and renewable energy: Potential and policy approaches
Thomas B. Johansson
1. Introduction
Renewed attention is now given to the development and utilization of renewable sources of energy, in response to growing concerns about climate change, acidification, and urban air pollution, and interest in secure and affordable supplies of energy for economic and social development, which was the dominating rationale behind the interest of the 1970s. The growing aspirations of an expanding world population are expected to increase world energy demand, even if strong efforts are made to improve energy efficiency. If this growing world energy demand is to be met with fossil fuels to any significant degree, carbon dioxide (CO2) emissions will increase considerably, not decrease as implied by the Framework Convention on Climate Change and the reports from the Intergovernmental Panel on Climate Change. For example, CO2 emissions are projected to grow by 2020 by 41 per cent in the reference scenario and by 93 per cent in the high-growth scenario of the World Energy Council Commission (1993).
The flow of renewable energy to the Earth's land surface is thousands of times greater than mankind's present rate of total energy use. Utilizing only a small fraction of this resource would provide humanity with an alternative and environmentally sound path towards meeting future energy needs. The question is whether this flow of energy can be converted to modern energy carriers such as electricity and liquid and gaseous fuels at acceptable costs in a sustainable manner.
An evaluation of the potential contribution of renewable energies concluded that, given adequate support, renewable energy technologies could meet much of the growing demand at prices lower than those usually forecast for conventional energy (Johansson et al., 1993). By the middle of the twenty-first century, renewable energy could account for three-fifths of the world's electricity market (see fig. 11.1) and two-fifths of the market for fuels used directly (see fig. 11.2). Moreover, making a transition to a renewables-intensive energy economy would provide environmental and other benefits not measured in standard economic accounts (see table 11.1). For example, by 2050 global CO2 emissions would be reduced to 75 per cent of their 1985 levels provided that energy efficiency and renewables are both pursued aggressively (see figs. 11.3a and 11.3b). And because renewable energy is expected to be competitive with conventional energy, such benefits could be achieved at no additional cost.
2. Progress in renewable-energy technologies
Impressive technical gains in renewable-energy technologies and systems have been made during the past decade. Renewable-energy systems have benefited from developments in electronics, biotechnology, materials sciences, and other energy areas. For example, advances in jet engines for military and civilian aircraft applications, and in coal gasification for reducing air pollution from coal combustion, have made it possible to produce electricity competitively using gas turbines derived from jet engines and fired with gasified biomass.1 And fuel cells developed originally for the space programme have opened the door to the use of hydrogen as a non-polluting fuel for transportation. Indeed, many of the most promising options are the result of advances made in areas not directly related to renewable energy, and were scarcely considered a decade ago.
Moreover, because the size of most renewable-energy equipment is small, the development and use of renewable-energy technologies can advance at a faster pace than conventional technologies. Whereas large energy facilities require extensive construction in the field, where labour is costly and productivity gains difficult to achieve, most renewable-energy equipment can be constructed in factories, where it is easier to apply modern manufacturing techniques that facilitate cost reduction. The small scale of the equipment also makes the time required from initial design to operation short, so that needed improvements can be identified by field testing and quickly incorporated into modified designs. In this way, many generations of technology can be introduced in short periods. This is reflected in analysis of "learning curves." These show costs as a function of integrated market volume. The examples of photovoltaic modules (Williams and Terzian, 1993) and biomass gasification/gas turbine power generation (Elliott and Booth, 1993) have been discussed.
Table 11.1 The benefits of renewable energy not captured in standard economic accounts
| Social and economic development | Production of renewable energy, particularly biomass, can provide economic development and employment opportunities, especially in rural areas, that otherwise have limited opportunities for economic growth. Renewable energy can thus help reduce poverty in rural areas and reduce pressures for urban migration. |
| Land restoration | Growing biomass for energy on degraded lands can provide the incentives and financing needed to restore lands rendered nearly useless by previous agricultural or forestry practices. Although lands farmed for energy would not be restored to their original condition, the recovery of these lands for biomass plantations would support rural development. prevent erosion, and provide a better habitat for wildlife than at present. |
| Reduced air pollution | Renewable-energy technologies, such as methanol or hydrogen for fuel-cell vehicles, produce virtually none of the emissions associated with urban air pollution and acid deposition, without the need for costly additional controls. |
| Abatement of global warming | Renewable energy use does not produce carbon dioxide and other greenhouse emissions that contribute to global warming. Even the use of biomass fuels will not con tribute to global warming: the carbon dioxide released when biomass is burned equals the amount absorbed from the atmosphere by plants as they arc grown for biomass fuel. |
| Fuel supply diversity | There would be substantial interregional energy trade in a renewables-intensive energy future, involving a diversity of energy carriers and suppliers. Energy importers would be able to choose from among more producers and fuel types than they do today and thus would he less vulnerable to monopoly price manipulation or unexpected disruptions of supplies. Such competition would make wide swings in energy prices less likely, leading eventually to stabilization of the world oil price. The growth in world energy trade would also provide new opportunities for energy suppliers. Especially promising are the prospects for trade in alcohol fuels such as methanol derived from biomass, natural gas (not a renewable fuel but an important complement to renewables), and, later, hydrogen. |
| Reducing the risks of nuclear weapons proliferation | Competitive renewable resources could reduce incentives to build a large world infrastructure in support of nuclear energy, thus avoiding major increases in the production, transportation, and storage of plutonium and other nuclear materials that could be diverted to nuclear weapons production. |
The advances are described and analysed in Johansson et al. (1993), a volume prepared for the United Nations. Two other important overview volumes in the field are Jackson (1993) and World Energy Council (1993).
3. Constructing a renewables-intensive global energy scenario
The findings are based on a renewables-intensive global energy scenario, which was developed in order to identify the potential markets for renewable technologies in the years 2025 and 2050, assuming that market barriers to these technologies are removed by comprehensive national policies (see "An Agenda for Action" in Johansson et al.. 1993: chap. 1). Some global features of the scenario are presented in figures 11.1 to 11.4. Separate detailed scenarios were constructed for 11 world regions.²
In constructing the scenario it was assumed that renewable-energy technologies will capture markets whenever (a) a plausible case can be made that renewable energy is no more expensive on a life-cycle cost basis than conventional alternatives,³ and (b) the use of renewable technologies at the levels indicated will not create significant environmental, land-use, or other problems. The economic analysis did not take into account any credits for the external benefits of renewables listed in table 11.1.
Energy demand
The market for renewable energy depends in part on the future demand for energy services: heating and cooling, lighting, transportation, and so on. This demand, in turn, depends on economic and population growth and on the efficiency of energy use. Future energy supply requirements can be estimated by taking such considerations into account. For the construction of the renewables-intensive energy scenario, future levels of demand for electricity and for solid, liquid, and gaseous fuels were assumed to be the same as those projected in a scenario by the Response Strategies Working Group of the Intergovernmental Panel on Climate Change.
The Working Group developed several projections of energy demand. The one adopted for the renewables-intensive scenario is characterized by "high economic growth" and "accelerated policies" (see fig. 11.5). The accelerated policies case was designed to demonstrate the effect of policies that would stimulate the adoption of energy-efficient technologies, without restricting economic growth. Because renewable technologies are unlikely to succeed unless they are part of a programme designed to minimize the overall cost of providing energy services, the energy-efficiency assumptions underlying the accelerated policies scenario are consistent with the objectives of the renewables-intensive scenario.
The high economic growth, accelerated policies scenario projects a doubling of world population and an eight-fold increase in gross world economic product between 1985 and 2050. Economic growth rates are assumed to be higher for developing countries than for those already industrialized. Energy demand grows more slowly than economic output because of the accelerated adoption of energy-efficient technologies, but demand growth outpaces efficiency improvements - especially in rapidly growing developing countries. World demand for fuel (excluding fuel for generating electricity) is projected to increase by 30 per cent between 1985 and 2050 and demand for electricity by 265 per cent (see fig. 11.5).
The Working Group's assumptions about energy efficiency gains are ambitious; none the less, cost-effective efficiency improvements greater than those in the scenario are technically feasible, and new policies can help speed their adoption. Structural shifts to less energy-intensive economic activities, for example knowledge-intensive electronics, information technologies, and biotechnology, may also reduce the energy needs of modern economies below those projected.4
Energy resources
Construction of a global energy supply scenario must be consistent with energy resource endowments and various practical constraints on the recovery of these resources. Some key elements of a renewables-intensive global energy system are as follows:
• There would be a diversity of energy sources, the relative abundance of which would vary from region to region. Electricity could be provided by various combinations of hydroelectric power, intermittent renewable power sources (wind, solar thermal electric, and photovoltaic power)? biomass power, and geothermal power. Fuels could be provided by methanol, ethanol, hydrogen, and methane (biogas) derived from biomass, supplemented by hydrogen derived electrolytically from intermittent renewables.
• Biomass would be widely used. Biomass would be grown sustainably and converted efficiently to electricity and liquid and gaseous fuels using modern technology, in contrast to the present situation, where biomass is used inefficiently and sometimes contributes to deforestation.
Intermittent renewables would provide as much as one-third of total electricity requirements cost-effectively in most regions, without the need for new electrical storage technologies.
• Natural gas would play a major role in supporting the growth of a renewable-energy industry. Natural-gas-fired turbines, which have low capital costs and can quickly adjust their electrical output, can provide excellent backup for intermittent renewables on electric power grids. Natural gas would also help launch a biomass-based methanol industry; methanol might well be introduced using natural gas feedstocks before the shift to methanol derived from biomass occurs.
• Most electricity produced from renewable sources would be fed into large electrical grids and marketed by electric utilities.
• Liquid and gaseous fuels would be marketed much as oil and natural gas are today. Large oil companies could become the principal marketers; some might also become producers, perhaps in joint ventures with agricultural or forest-product industry firms.
Renewable energy
In the renewables-intensive energy scenario, global consumption of renewable resources reaches a level equivalent to 318 exajoules per year (EJ/yr) of fossil fuels by 2050 a rate comparable to total present world energy consumption. Though large, this rate of production involves using less than 0.01 per cent of the 3.8 million EJ of solar energy reaching the earth's surface each year. The total electric energy produced from intermittent renewable sources (some 34 EJ/ yr) would be less than 0.003 per cent of the sunlight that falls on land and less than 0.1 per cent of the energy available in the winds. Moreover, the electric energy that would be recovered from hydro-power resources, some 17 EJ/yr by 2050, is small relative to the 130-160 EJ/yr that are theoretically recoverable (Moreira and Poole, 1993). The amount of energy targeted for recovery from biomass 206 EJ/yr by 2050 - is also small compared with the rate (3,800 EJ/yr) at which plants convert solar energy to biomass (Hall et al., 1993).
The production levels considered are therefore not likely to be constrained by resource availability. A number of other practical considerations, however, do limit the renewable resources that can be used. The scenario was constructed subject to the following restrictions.
First, biomass must be produced sustainably (see Johansson et al., 1993: 13 and 593), with none harvested from virgin forests. Some 62 per cent of the biomass supply would come from plantations established on degraded lands or, in industrialized countries, on excess agricultural lands. Another 32 per cent would come from residues of agricultural or forestry operations. Some residues must be left behind to maintain soil quality or for economic reasons; three-quarters of the energy in urban refuse and timber and pulpwood residues, one-half of residues from ongoing logging operations, one-quarter of the dung produced by livestock, one-quarter of the residues from cereals, and about two-thirds of the residues from sugar cane are recovered in the scenario. The remaining 6 per cent of the biomass supply would come from forests that are now routinely harvested for timber, paper, or fuelwood. Production from these forests can be made fully sustainable although some of these forests are not well managed today.
Secondly, although wind resources are enormous, the use of wind equipment will be substantially constrained in some regions by land-use restrictions - particularly where population densities are high. In the scenario, substantial development of wind power takes place in the Great Plains of the United States (where most of the country's wind resources are found), whereas in Europe the level of development is limited because of "severe land-use constraints" (Grubb and Meyer, 1993).
Thirdly, the amounts of wind, solar-thermal, and photovoltaic power that can be economically integrated into electricity-generating systems are very sensitive to patterns of electricity demand as well as weather conditions. The marginal value of these so-called intermittent electricity sources typically declines as their share of the total electricity market increases. Analysis of these interactions suggests that intermittent electricity generators can provide 25-35 per cent of the total electricity supply in most parts of the world (Kelly and Weinberg, 1993). Some regions would emphasize wind, while others would find photovoltaic or solar-thermal electric systems more attractive. On average, Europe is a comparatively poor location for intermittent power generation, so that the penetration of intermittent renewables there is limited to 14 per cent in 2025 and 18 per cent in 2050.
An interesting approach to the intermittence of wind energy has been proposed by Cavallo (1994). Wind electricity generated in the US Midwest and transported to major demand centres is projected to cost about 6 cents per kWh at the demand site, with a capacity factor of 70 per cent (this is essentially equivalent to base load generation in conventional power stations). The increased availability is achieved through wind farm oversizing (in relation to transmission capacity), increased hub heights, and compressed air storage.
Fourthly, although the exploitable hydroelectricity potential is large, especially in developing countries (Moreira and Poole, 1993), and hydropower is an excellent complement to intermittent electricity sources, the development of hydropower will be constrained by environmental and social concerns - particularly for projects that would flood large areas. Because of these constraints, it is assumed that only a fraction of potential sites would be exploited, with most growth occurring in developing countries. Worldwide, only one-quarter of the technical potential, as estimated by the World Energy Conference, would be exploited in the scenario by 2050. Total hydroelectricity production in the United States, Canada, and OECD Europe would increase by only one-third between 1985 and 2050, and some of the increase would result from efficiency gains achieved by retrofitting existing installations.
The levels of renewable energy development indicated by this scenario represent a tiny fraction of the technical potential for renewable energy. Higher levels might be pursued, for example, if society were to seek greater reductions in CO2 emissions. The scenario presented here is based on stringent standard economic criteria, without including a value for the benefits indicated in table 11.1. Cost reductions through research and development and "learning curve" effects would permit a higher utilization, under the same economic criteria.
A renewables-intensive energy future would introduce new choices and competition in energy markets. Growing trade in renewable fuels and natural gas would diversify the mix of suppliers and the products traded (see fig. 11.4), which would increase competition and reduce the likelihood of rapid price fluctuations and supply disruptions. It could also lead eventually to a stabilization of world energy prices. In addition, new opportunities for energy suppliers would be created. Especially promising are prospects for trade in alcohol fuels, such as methanol derived from biomass. Land-rich countries in sub-Saharan Africa and Latin America could become major alcohol fuel exporters,
Conventional fuels
By making efficient use of energy and expanding the use of renewable technologies, the world can expect to have adequate supplies of fossil fuels well into the twenty-first century. However, in some instances regional declines in fossil fuel production can be expected because of resource constraints.
Oil production outside the Middle East would decline slowly under the renewables-intensive scenario, so that one-third of the estimated ultimately recoverable conventional resources will remain in the ground in 2050. As a result, non-Middle Eastern oil production would drop from 103 EJ/yr in 1985 to 31 EJ/yr in 2050. To meet the demand for liquid fuels that cannot be met by renewables, oil production is assumed to increase in the Middle East, from 24 EJ/yr in 1985 to 34 EJ/yr in 2050. Total world conventional oil resources would decline from about 9,900 EJ in 1988 to 4,300 EJ in 2050.
Although remaining conventional natural gas resources are comparable to those for conventional oil, natural gas is presently produced globally at just half the rate for oil. With adequate investment in pipelines and other infrastructure components, natural gas could be a major energy source for many years. In the decades ahead, substantial increases in natural gas production are feasible for all regions of the world except for the United States and OECD Europe. For the United States and OECD Europe, where resources are more limited, production would decline slowly, so that one-third of these regions, natural gas resources will remain in 2050. In aggregate, natural gas production outside the Middle East would increase slowly, from 62 EJ/yr in 1985 to 75 EJ/yr in 2050. However, in the Middle East, where natural gas resources are enormous and largely unexploited, production would expand more than 12-fold, to 33 EJ/yr in 2050. Globally, about half the conventional natural gas resources would remain in 2050.
The renewables-intensive scenario was developed for future fuel prices that are significantly lower than those used in most long-term energy forecasts. It is expected that in the decades ahead the world oil price would rise only modestly and the price of natural gas would approach the oil price (which implies that the natural gas price paid by electricity utilities would roughly double). There are two primary reasons for expecting relatively modest energy price increases: first, overall demand for fuels would grow comparatively slowly between 1985 and 2050 because of assumed increases in the efficiency of energy use; and, secondly, renewable fuels could probably be produced at costs that would make them competitive with petroleum at oil prices not much higher than at present.
4. Public policy issues
A renewables-intensive global energy future is technically feasible, and the prospects are excellent that a wide range of new renewable-energy technologies will become fully competitive with conventional sources of energy during the next several decades. Yet the transition to renewables will not occur at the pace envisaged if existing market conditions remain unchanged. Private companies are unlikely to make the investments necessary to develop renewable technologies because the benefits are distant and not easily captured by individual firms. Moreover, private firms will not invest in large volumes of commercially available renewable-energy technologies because renewable-energy costs will usually not be significantly lower than the costs of conventional energy. And, finally, the private sector will not invest in commercially available technologies to the extent justified by the external benefits (e.g. a stabilized world oil price or reduced greenhouse gas emissions) that would arise from their widespread deployment. If these problems are not addressed, renewable energy will enter the market relatively slowly.
Fortunately, the policies needed to achieve the twin goals of increasing efficiency and expanding markets for renewable energy are fully consistent with programmes needed to encourage innovation and productivity growth throughout the economy. Given the right policy environment, energy industries will adopt innovations, driven by the same competitive pressures that have revitalized other major manufacturing businesses around the world.
Electricity utilities will have to shift from being protected monopolies enjoying economies of scale in large generating plants to being competitive managers of investment portfolios that combine a diverse set of technologies, ranging from advanced generation, transmission, distribution, and storage equipment to efficient energy-using devices on customers' premises. Automobile and truck manufacturers, and the businesses that supply fuels for these vehicles, will need to develop entirely new products. A range of new fuel and vehicle types, including fuel-cell vehicles powered by alcohol or hydrogen, are likely to play major roles in transportation in the next century.
Capturing the potential for renewables requires new policy initiatives. The following policy initiatives are proposed to encourage innovation and investment in renewable technologies:
• Subsidies that artificially reduce the price of fuels that compete with renewables should be removed; if existing subsidies cannot be removed for political reasons, renewable-energy technologies should be given equivalent incentives.
• Taxes, regulations, and other policy instruments should ensure that consumer decisions are based on the full cost of energy, including environmental and other external costs not reflected in market prices.
• Government support for research on and development and demonstration of renewable-energy technologies should be increased to reflect the critical roles renewable-energy technologies can play in meeting energy, developmental, and environmental objectives. This should be carried out in close cooperation with the private sector.
• Government regulation of electricity utilities should be carefully reviewed to ensure that investments in new generating equipment are consistent with a renewables-intensive future and that utilities are involved in programmes to demonstrate new renewable-energy technologies in their service territories.
• Policies designed to encourage the development of a biofuels industry must be closely coordinated with both national agricultural development programmes and efforts to restore degraded lands.
• National, regional, and international institutions should be created or strengthened to implement renewable-energy programmes.
• International development funds available for the energy sector should be directed increasingly to renewables.
• A strong international institution should be created to assist and coordinate national and regional programmes for increased use of renewables, to support the assessment of energy options, and to support centres of excellence in specialized areas of renewable-energy research.
There are many ways such policies could be implemented. The preferred policy instruments will vary with the level of the initiative (national, regional, and/or international). The preferred options will reflect differences in endowments of renewable resources, stages of economic development, and cultural characteristics.
The traditional approach of market introduction involves the identification and addressing of niche markets, where the comparative advantages of the new technology are the most valuable, leading to experience being gained and costs reduced. An interesting alternative approach has been suggested, where the "learning curve" of photovoltaics is extended into the future. Williams and Terzian (1993) observe that a sufficiently large investment now would bring costs down much faster than for a niche market approach, and would, in fact, be an economically advantageous proposition.
The integrating theme for all such initiatives, however, should be an energy policy aimed at promoting sustainable development. It will not be possible to provide the energy needed to bring a decent standard of living to the world's poor or to sustain the economic well-being of the industrialized countries in environmentally acceptable ways, if the present energy course continues. The path to a sustainable society requires more efficient energy use and a shift to a variety of renewable-energy sources.
Although not all renewables are inherently clean, there is such a diversity of choices that a shift to renewables carried out in the context of sustainable development could provide a far cleaner energy system than would be feasible by tightening controls on conventional energy.
The central challenge to policy makers in the decades ahead is to frame economic policies that simultaneously satisfy both socioeconomic developmental and environmental challenges. This analysis demonstrates the enormous contribution that renewable-energy can make in addressing this challenge. It provides a strong case that carefully crafted policies can provide a powerful impetus to the development and widespread use of renewable-energy technologies and can lead ultimately to a world that meets critical socio-economic, developmental, and environmental objectives.
Acknowledgements
This paper draws heavily on work done together with Henry Kelly, Amulya Reddy, and Robert Williams, which has been published in Johansson et al. (1993).
Notes
1. In this study, the term "biomass" refers to any plant matter used directly as fuel or converted into fluid fuels or electricity. Sources of biomass are diverse and include the wastes of agricultural and forest-product operations as well as wood, sugar cane, and other plants grown specifically as energy crops.
2. The regions are Africa, Latin America, South and East Asia, centrally planned Asia, Japan, Australia/New Zealand, the United States, Canada, OECD Europe, former centrally planned Europe, and the Middle East.
3. Assumptions about the cost and performance of future renewable-energy equipment arc based on detailed analyses of technologies in Johansson et al. (1993: chaps. 2-22).
4. For example, per capita energy use in OECD Europe is currently about 20 per cent less than in Eastern Europe and the former Soviet Union. In the accelerated policies scenario, per capita energy demand declines in OECD Europe and increases 60 per cent by 2050 in Eastern Europe and the former Soviet Union. In light of the rapid economic and political changes now under way, it is doubtful that these two regions will take such divergent paths.
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