The IEA is still grossly underestimating solar PV in its modelling
This post is a quick update of previous analysis.
Back in 2013 I pointed out how far from reality the IEA’s projections of renewables deployment were. They persistently showed the rates of installation of renewables staying roughly constant over the following 20 years at whatever level they had reached at the time of the projection being made. In reality, rates of installation were growing strongly, and have continued to do so (see chart). Rates of installation are now a factor of nearly four times greater than the IEA was projecting back in 2013 – they were projecting installation rates of about 28GW for 2018, where in fact around 100 GW were installed in 2017[1] and an estimated 110GW in 2018.
I have returned to the topic since 2013 (see links at the bottom of this post), as have many others, each time pointing out how divorced from reality the IEA’s projections are.
Unfortunately, the IEA is continuing with its approach, and continuing to grossly understate the prospects for renewables. Auke Hoestra has recently updated his analysis of the IEA’s solar PV projections to take account of the latest (2018) World Energy Outlook New Policies Scenario (see link below chart – in addition to chart data his post also contains a valuable commentary on the issue). The analysis continues to show the same pattern of obviously misleading projections, with the IEA showing the rate of solar PV installation declining from today’s rate until 2040. Of course eventually the market will mature, and rates of installation will stabilise, but this seems a long way off yet.
IEA projections for solar PV in successive World Energy Outlooks compared with outturn
http://zenmo.com/photovoltaic-growth-reality-versus-projections-of-the-international-energy-agency-with-2018-update/
In 2013 I was inclined to give the IEA the benefit of the doubt, suggesting organisational conservatism led to the IEA missing a trend. This no longer seems tenable – the disconnect between projections and reality has been too stark for too long. Instead, continuing to present such projections is clearly a deliberate choice.
As Hoekstra notes, explanations for the disconnect have been advanced by the IEA, but they are unsatisfactory. And as renewables become an ever-larger part of the energy mix the distortions introduced by this persistence in misleading analysis become ever greater.
There is no excuse for the IEA persisting with such projections, and none for policy makers taking them seriously. This is disappointing when meaningful analysis of the energy transition is ever more necessary.
https://onclimatechangepolicydotorg.wordpress.com/2013/10/08/why-have-the-ieas-projections-of-renewables-growth-been-so-much-lower-than-the-out-turn/
https://onclimatechangepolicydotorg.wordpress.com/2015/06/27/the-ieas-bridge-scenario-to-a-low-carbon-world-again-underestimates-the-role-of-renewables/
[1] The BP Statistical Review of World Energy shows a total of 87GW installed in 2017 https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2018-renewable-energy.pdf
Five years on
The past five years have given many reasons for optimism about climate change
I have now been writing this blog for just over five years, and it seems timely to step back and look at how the climate change problem appears now compared with five years ago.
In some ways it is easy to feel discouraged. In the last five years the world has managed to get through about a tenth of its remaining carbon budget, a budget that needs to last effectively forever.
However, in many ways there seem to be reasons for much greater optimism now than five years ago. Several trends are converging that together make it appear that the worst of the risks of climate change can be avoided.
There is increasing action at the national level to reduce emissions, reinforced by the Paris Agreement …
This trend has now been reinforced by the Paris Agreement, which entered into force in November 2016, and commits the world to limiting temperature rises and reducing emissions.
There is increasing evidence of success in reducing emissions …
Many developed countries, especially in Europe, have shown since 1990 that it is possible to reduce emissions while continuing to grow their economies. Globally, emissions of carbon dioxide from energy and industry have at least been growing more slowly over the past four years and may even have reached a plateau[ii].
Carbon pricing is spreading around the world …
Among the many policies put in place, the growth of carbon pricing has been especially remarkable. It has grown from a few small northern European economies 15 years ago to over 40 jurisdictions[iii]. Prices are often too low to be fully effective. However, carbon pricing has also been shown to work spectacularly well in the right circumstances, as it has in the UK power sector. And the presence of emissions caps in many jurisdictions gives a strong strategic signal to investors.
Investors are moving out of high carbon sources and in to lower carbon opportunities …
Companies are under increasing pressure to say how their businesses will be affected by climate change and to do something about reducing emissions. And initiatives such as the Climate Action 100+, which includes over two hundred global investors controlling over $20 trillion of assets, are putting pressure on companies to step up their action. This will further the trend towards increasing investment in a low carbon economy. Meanwhile, many funds are divesting from fossil fuels, and vast amounts of capital are already going into low carbon investments.
Falling costs and increasing deployment of renewables and other low carbon technologies …
Solar and wind power and now at scale and continuing to grow very rapidly. They are increasingly cost-competitive with fossil fuels. The decarbonisation of the power sector thus looks likely to proceed rapidly, which will in turn enable electrification to decarbonise other sectors. Electric vehicle sales are now growing rapidly, and expected to account for the majority of light vehicle sales within a couple of decades. Other technologies, such as LED lighting are also progressing quickly.
This is not only making emissions reductions look achievable, it is making it clear that low carbon technologies can become cheaper than the high carbon technologies they replace, and can build whole new industries as they do. As a reminder of just how fast things have moved, in the last five years alone, the charts here show global generation from wind and solar since 2000.
Falling costs of low carbon technologies, more than anything else, gives cause for optimism about reducing emissions. As lower carbon alternatives become cheaper the case for high carbon technologies will simply disappear.
Chart 1 Rapid growth of solar PV generation continues
Sources: BP statistical review of world energy [i]. 1% of consumption based on data for generation with an adjustment for losses.
Many studies have underestimated this growth and continue to do so …
This growth has been much faster than many predicted. In 2013 and again in 2015 I noted[ii] that the IEA’s annual World Energy Outlook (WEO) projections for both wind and solar PV were consistently vastly too low. Specifically, the IEA’s projections showed the annual rate of installation of wind and solar PV capacity remaining roughly constant, whereas in fact it both were increasing rapidly. Updated analysis for solar PV recently published by Auke Hoekstra[iii] shows that this position seems remarkably unchanged (see Chart 2). The repeated gross divergence between forecasts and outturns over so many years makes it hard to conclude anything other than the IEA is showing a wilful disconnection with reality in this respect, though their historical data on the energy sector remains very valuable.
Chart 2: IEA projections for solar PV capacity continue to vastly underestimate growth
Although the IEA’s projections are particularly notable for their inability to learn from repeated mistakes, others have also greatly underestimated the growth of solar PV[iv]. Crucially, as a recent study in Nature Energy[v] shows, this tendency extends to many energy models used in policy making, including those relied on by the IPCC in its Assessment Reports.
This is largely because models have underestimated both the effect of policy support on deployment and the rate of technological progress, and so have underestimated the resulting falls in cost both in absolute terms and relative to other technologies. Where new information has been available there has often been a lag in incorporating it in models. Feedbacks between cost falls, deployment and policy may also have been under-represented in many models. Consequently models have understated both growth rates and ultimate practical potential for solar PV.
This damages policy making …
Does this matter? I think it does, for at least two reasons.
First, if policy is based on misleading projections about the role of different technologies then policy support and effort will likely be misdirected. For example, means of integrating solar PV at very large scale into energy systems look to have been under-researched and under-supported. Other low carbon technologies such as power generation with CCS may have received more attention in comparison to their potential[vi].
Second, there is a risk of damaging the policy debate. In particular there is a risk of exacerbating polarisation of the debate, rather than creating a healthy mix of competing judgements. There is already a tendency for some commentaries on energy to favour fossil energy sources, and perhaps nuclear, and for others to favour renewables – what one might call “traditionalist” and “transitionalist” positions. Traditionalists, including many energy companies, tend to point to the size and inertia of the energy system and the problems of replacing the current system with new sources of energy. Transitionalists, including many entrepreneurs and environmentalists, tend to emphasise the urgent need to reduce emissions, the speed of change in technologies and costs now underway, and the exciting business opportunities created by change.
Both perspectives have merit, and the debate is too important to ignore either. The IEA provides an example of distorting the debate. It will naturally, due to its history, tend to be seen as to some extent favouring the traditionalist viewpoint. If this perception is reinforced by grossly unrealistic projections for renewables it risks devaluing the IEA’s other work even when it is more realistic, leaving it on one side of the debate. An opportunity for a balanced contribution from a major institution is lost. The debate will be more polarised as a result, risking misleading policy makers, and distorting policy choices.
Securing balanced, well informed debate on the transition to a low carbon energy system is quite challenging enough. Persistently underestimating the role of a major technology does not help.
It is often claimed that additional actions to reduce greenhouse gas emissions in sectors covered by the EUETS are ineffective because total emissions are set by the level of the cap. However this claim is not valid in the current circumstances of the EUETS, and is unlikely to be so even in future. Additional emissions reduction measures in covered sectors can be effective in further permanently reducing emissions.
This post is longer than usual as it deals with a very important but relatively technical policy issue.
The argument about the effectiveness of additional actions to reduce emissions …
Many additional actions are being taken to reduce greenhouse gas emissions in sectors covered by the EUETS. These include energy efficiency programmes, deployment of renewables, replacing coal plants with less carbon intensive generation, and national carbon pricing.
It is often argued that such additional actions do not reduce total emissions because the maximum quantity of emissions is set by the EUETS cap, so emissions may remain at the fixed level of the cap, irrespective of what other action is taken (see the end of this post for instances of this argument being used publicly).
However, this argument does not stand up to examination.
Assessment of the argument needs to take account of the current circumstances of the EUETS. Emissions covered by the EUETS were some 200 million tonnes (about 10%) below the cap in 2015. This year emissions are likely to be 13% below the cap. The EUETS currently has a cumulative surplus of almost three billion allowances, including backloaded allowances currently destined for the Market Stability Reserve (MSR), and the surplus is set to grow as emissions continue to be less than the cap.
In these circumstances emissions reductions from additional actions will mainly increase the surplus of allowances, with almost all of these allowances ending up in the (MSR). These allowances will stay there for decades under current rules, and so not be available to enable emissions during this time.
Indeed, in practice these allowances are unlikely ever to enable additional emissions. The argument that they will assumes that the supply of allowances is fixed into the long term. In practice this is not the case. Long term supply of allowances is determined by policy, which can and does respond to circumstances. Additional surpluses and lower prices are likely to lead to tighter caps than would otherwise be the case, or cancellation of allowances from the MSR or elsewhere.
The remainder of this post looks at these issues in more detail, including why the erroneous view that additional actions don’t reduce cumulative emissions has arisen.
Why current circumstances make such a difference
The argument that additional actions to reduce emissions will be ineffective reflects how the EUETS was expected to operate when it was introduced. It was assumed that demand for allowances would adjust so that the quantity of allowances used would always equal to the cap, which was assumed to be fixed.
This is illustrated in stylised form in the diagram below. The supply curve is vertical – perfectly inelastic supply. Demand for allowances without additional actions leads to prices at an initial level. Additional actions reduce demand for allowances at any given price, effectively shifting the demand curve to the left by the amount by which additional actions reduce emissions. This leads price to fall until the lower price creates sufficient additional demand for allowances, so that total demand for allowances is again equal to the supply set by the cap. Because the supply curve is fixed (vertical) the equilibrium quantity of emissions is unchanged, remaining equal to the cap[1].
Chart 1: A price response to the change in demand for allowances can lead to emissions re-equilibrating at the cap when allowances are scarce …
However, at present, large increases in emissions (such that emissions rise to the cap) due to falling prices are clearly not occurring, and they seem unlikely to do so over the next few years. As noted above, the market remains in surplus both cumulatively and on an annual basis. The price would be close to zero in the absence of banking of allowances into subsequent phases, because there would be a cumulative surplus over Phase 3 of the EUETS, and so no scarcity[2].
If demand were further reduced in the absence of banking there would be no price fall, because prices would already be already close to zero. Correspondingly, there would be no increase in demand for allowances to offset the reduced emissions from additional actions. The emissions reductions from additional actions would be retained in full. This is again illustrated in stylised form in the diagram below.
Chart 2: With a surplus of allowances and price close to zero (assuming no banking) any reduction in demand for allowances will be retained in full …
In practice the potential to bank allowances and the future operation of the MSR supports the present price. It is expected that in future as the cap continues to fall allowances will become scarce. There is thus a value to allowances set by the cost of future abatement.
Additional actions now to reduce emissions increase the surplus, and so postpone the expected date at which the market returns to balance. This reduces current prices. This will in turn lead to some increase in emissions. However, this increase will be small – much smaller than if the market were short of allowances now.
Quantifying this effect
Modelling indicates that if additional actions are taken over the next 10-15 years, then the increase in demand for allowances due to falling price will be less than 10% of the size of the reduction in emissions[3]. Correspondingly more than 90% of the emissions reductions due to additional actions are retained, adding to the surplus of allowances which, which end up in the MSR. Modelling parameters would need to be in error by about an order of magnitude to substantially affect this conclusion.
This effect arises in part because of the low level of prices at present. This means that even a large percentage change in price leads to a small absolute change, and thus a small effect on demand for allowances. Even a 50% price fall would be less than €3/t at current price levels. It also reflects that the shape of the Marginal Abatement Cost curve, with price falls only increasing abatement by a small amount. This means that even if prices are higher than current levels the effect of price falls on demand for allowances is still relatively small.
The relatively small response to price changes is consistent with the current market, where there is a lack of sufficient increase in demand to absorb the current yearly surplus (or even to come close to doing so).
The 90%-plus of the allowances freed up by additional actions are added to the surplus end up over time in the MSR. They then stay there for several decades. This is because even without additional actions, and even with some reform of the current proposals for Phase 4 (which covers 2021 to 2030), the MSR is likely contain at least three billion allowances by 2030, and perhaps as much as five billion. This will take until 2060 to return to the market, and perhaps until the 2080s, at the maximum rate written into the legislation of 100 million per annum.
Any additional surplus will only return after this. Even if the return rate of the MSR were doubled the return time for additional surplus would still be reckoned in decades from now.
This will be even more the case if proposals for the EUETS Phase 4 are not reformed, and the surplus of allowances being generated anyway is correspondingly greater.
The implications of the very long delay in the return of allowances
It seems unlikely that allowances kept out of the market for so long would ever lead to additional emissions. It would require policy makers to allow the allowances to return and enable additional emissions. This would be at a time when emission limits would be much tighter than they are now, and indeed with a commitment under the Paris Agreement to work towards net zero emissions in the second half of this century.
There are several policy mechanisms that could prevent the additional surplus allowances enabling emissions. Subsequent caps tighter as unused allowances reduce the perceived risk of tighter caps, and additional actions now set the economy on a lower carbon pathway. Furthermore, with a very large number of allowances in the MSR over several phases of the scheme, allowances may well be cancelled. Indeed, over such long periods the ETS itself may even be abolished or fundamentally reformed, with allowances not carried over in full. Or a surplus under the EUETS may persist indefinitely as additional actions succeed in reducing emissions.
As the market tightens towards 2030 it is likely that a higher proportion of any additional emissions reductions will be absorbed by the market via a price effect, but it still seems unlikely to be as much as 100% given the long term trend to lower emissions and the lack of additional sources of demand, especially in the event of large scale additional actions[4]. Some of the policy responses described would still be expected to reduce the supply of allowances.
The argument that emissions will always rise to the level of the cap manifestly does not hold at present, when emissions are well below the cap. and there is a huge cumulative surplus of allowances.
In future, it seems likely that more than 90% of reductions in emissions from additional actions will simply add to the surplus, and eventually end up in the MSR. They at least stay there for several decades, because of the very large volume that will anyway be in the MSR.
While there is in principle a possibility that they will eventually return to the market and allow additional emissions this appears most unlikely in practice. Policy decisions will be affected by circumstances and this can readily prevent additional emissions, through some combination of tightening of the cap and cancellation of allowances.
Even when the market returns to scarcity these policy responses are likely to hold to a large extent, for example with lower prices enabling more stringent caps. The hypothesis of no net reductions in emissions from additional actions thus seems unlikely ever to hold true.
Spurious arguments about a lack of net emissions reductions should not be used as a pretext for failing to take additional actions to reduce emissions now.
[1] This is analogous to the well-established rebound effect for energy efficiency measures. Improved domestic insulation lowers the effective price of energy, so consumers take some of the benefits as increased warmth, and some as reduced consumption. The argument here is that in effect there is a 100% rebound effect for emissions reductions under the EUETS.
[2] Such a situation occurred towards the end of Phase 1 of the EUETS (2005-7), which did not allow banking into Phase 2. Towards the end of the Phase there was a surplus of allowances and the price fell to close to zero.
[3] The price change is modelled by assuming the price is set by discounting future abatement costs, with a later date for the market returning to balance leading to greater discounting and so a lower price. The increase in demand for allowances is modelled based on a marginal abatement cost curve and consideration of sources of additional demand. See report referenced at the end of this post for further details of the modelling.
[4] There are likely to be path dependency and hysteresis effects in the market which prevent a full rebound.
The constrained role of biomass
The role of biomass in the world energy system looks likely to be constrained, so there will be a need to focus on high value applications where there are few low-carbon alternatives.
This is the second of two posts looking at the role of biomass. Here I focus on potential resource constraints.
A wide range of possibilities
The amount of biomass available to provide energy depends a lot on the amount of land available to grow energy crops, and how much that land can yield. Different assumptions on these variables produce quite different estimates of the total resource, and numerous studies over the years have produced a wide range of results. The amount of waste biomass available also matters, but potential availability from this source is smaller.
A comprehensive review of estimates of the biomass resource was carried out two years ago by researchers at Imperial College[i] (see chart). It showed a variation in estimates of a factor of around 40, from of the order of 30 EJ to over 1000 EJ (1EJ =1018 J, or a billion GJ, or 278 TWh). This compares with total world primary energy demand of just under 600 EJ, transport demand of around 100 EJ, and at least 250 EJ to produce present levels of electricity, assuming biomass combustion to remain relatively inefficient[ii].
Estimates of available biomass resource
Source: Slade et. al. (2014)
The authors examine reasons for differences in estimates, which I’ve summarised in the table below. The differences are largely assumption driven, because the small scale of commercial bioenergy at present provides little empirical evidence about the potential for very large scale bioenergy, and future developments in food demand and other factors are inevitably uncertain.
Reasons for variation in estimates of total biomass supply
Range Typical assumptions
Up to 100EJ Limited land available for energy crops, high demand for food, limited productivity gains in food production, and existing trends for meat consumption. Some degraded or abandoned land is available.
100-300 EJ Increasing crop yields keep pace with population growth and food demand, some good quality agricultural land is made available for energy crop production, along with 100-500Mha of grassland, marginal, degraded and deforested land
300-600EJ Optimistic assumptions on energy crop availability, agricultural productivity outpaces demand, and vegetarian diet
600 EJ + Regarded as extreme scenarios to test limits of theoretical availability
Reasons for caution
In practice there seem to me to be grounds for caution about the scale of the available resource, although all of these propositions require testing, including through implementation of early projects.
Land Availability
There will rightly be emphasis on protection of primary forest on both carbon management and biodiversity grounds, with some reforestation and rewilding.
There is little evidence of a shift away from meat consumption. With the exception of India, less than 10% of people in most countries are vegetarian despite many years of campaigning on various grounds[iii]. In China meat consumption is associated with rising living standards.
Demand for land for solar PV will be significant, although a good deal of this will be on rooftops and in deserts
The nitrogen cycle is already beyond its limit, constraining the role of fertiliser, and water stress is a serious issue in many places (agriculture accounts for 70% of current fresh water use). The UN Food and Agriculture Organisation has projected fairly modest increases in future yields.
Difficulties in limiting lifecycle emissions from biofuels are likely to lead to caution about widespread deployment.
Concerns about food security may limit growth of biofuels.
Small scale to date, despite many years of interest
There has been little progress to date compared with other low carbon technologies. Though traditional biofuels remain widely used, modern biofuels account for a very small proportion of demand at present. World biofuels consumption currently accounts for only 0.2% of world oil consumption[iv] . Many biofuels programmes have had subsidies cut and there is still limited private sector investment.
In this context some estimates of the potential for biomass to contribute to energy supply seem optimistic. For example, Shell’s long-term scenarios (Oceans and Mountains) show biomass of 74 EJ and 87 EJ respectively for commercial biomass, 97-133 EJ including traditional biomass by 2060[v]. These totals are towards or above the more cautious estimates for the resource that might ultimately be available (see table above). A recent review article[vi] suggested that by 2100 up to 3.3 GtCp.a. (around 12 billion tonnes of CO2) could be being removed, and producing around 170EJ of energy. However the land requirements for this are very large at about 10% of current agricultural land. The authors suggest instead a mean value for biomass potential of about a third of that, or 60EJ.
On balance it seems that biomass is likely to account for at most less than 10% of commercial global energy (likely to be around 800-900EJ by mid-century), and potentially much less if land availability and difficulties with lifecycle emissions prove intractable.
It thus seems likely that biomass energy will be relatively scarce, and so potentially of high value. This in turn suggests it is likely to be mainly used in applications where other low carbon alternatives are unavailable. These are not likely to be the same everywhere, but they are likely often to include transport applications, especially aviation and likely heavy trucking, and perhaps to meet seasonal heat demand in northern latitudes. For example, according to Shell’s scenarios aviation (passengers + freight) is expected to account for perhaps 20-25EJ by 2050, and biomass could likely make a useful contribution to decarbonisation in this sector.
None of this implies that biomass is unimportant, or has no role to play. It does imply that policies focussing on deploying other renewable energy sources at large scale, including production of low carbon electricity for transport, will be essential to meeting decarbonisation targets. And the optimum use of biomass will require careful monitoring and management.