What does US energy independence mean for Asia?

International Energy Agency chief economist Fatih Birol gives his views on Asia's energy landscape in this exclusive interview

Dr. Fatih Birol is the chief economist at the International Energy Agency in Paris. He is responsible for the IEA’s flagship World Energy Outlook publication, which is recognised as an authoritative source of strategic analysis of global energy markets. He is also the founder and chair of the IEA Energy Business Council, which provides a forum to enhance cooperation between the energy industry and energy policymakers. Dr Birol will be speaking at the Singapore International Energy Week 2013 from October 28 to November 1, where he will also present a report on energy in Asean.

You have mentioned the foundations of the global energy system are shifting; can you elaborate? What is your view of these “new horizons in energy”?

Dr Birol: The global energy map is notably being redrawn by the resurgence in oil and gas production in the United States, the retreat from nuclear power in some countries, continued rapid growth in the use of wind and solar technologies, an increasing policy focus on energy efficiency and by the global spread of unconventional gas production. These shifts will have far-reaching consequences for energy markets and trade, but they don’t change the fact that current global trends in energy supply and consumption are patently unsustainable — environmentally, economically and socially.

What will the impact of US energy independence be on the rest of the world?

By the end of this decade, we expect the United States to become the largest global producer of both oil and gas – a development that was all but unthinkable a few years ago. Around that time it will also start to see the impact of new fuel-efficiency measures in transport. The result is a continued fall in US oil imports, to the extent that North America is set to become a net oil exporter around 2030. This will accelerate the switch in direction of international oil trade towards Asia, putting a focus on the security of the strategic routes that bring Middle East oil to Asian markets.

The resurgence in US oil and gas production is also spurring economic activity in upstream oil and gas and among energy-intensive industries that are gaining a competitive edge. Moreover, it has contributed to wide differences in electricity prices in different parts of the world, which are now putting a significant burden on industry in Europe and in parts of Asia. In our upcoming World Energy Outlook 2013, to be released in November, we will examine in detail the implications for economic competitiveness of this changing energy map and offer insights on options policy makers could adopt to improve their competitiveness, taking account of the need to curb fossil energy use and greenhouse-gas emissions.

In recent interviews, you highlighted that the door to 2 degrees (global temperature rise) was closing. Why?

Our new World Energy Outlook Special Report “Redrawing the energy-climate map”, which was released in early June, shows that the path we are currently on is more likely to result in a temperature increase of between 3.6 °C and 5.3 °C.

To keep open a realistic chance of meeting the 2 °C target, intensive action is required before 2020, the date by which a new international climate agreement is due to come into force. Energy is at the heart of this challenge: the energy sector accounts for around two-thirds of greenhouse-gas emissions, as more than 80 per cent of global energy consumption is based on fossil fuels.

The good news is that there is much more that can be done to tackle energy-sector emissions. Our report identifies four measures that can keep the door open to the 2 degrees Celsius climate goal at no net economic cost, an important concern for many governments. The report can be downloaded for free at http://www.worldenergyoutlook.org/

You have dubbed energy efficiency as a huge opportunity unrealised. How can we unlock the untapped potential of energy efficiency? Which countries in Asia have been most successful in the adoption of renewable energy and improving energy efficiency?

Energy efficiency has been an “epic failure” of energy policy making in most parts of the world, but there are increasing signs that it is rising up the agenda. This could well represent a gamechanger in the same way the boom in US oil and gas production is redefining the global energy map. After all, energy efficiency is just as important as energy supply – perhaps more so – in determining the nature of our economies.

But actions need to be taken to trigger this potential. First there needs to be government leadership. For too long, energy efficiency has been considered the low-hanging fruit that is ripe to be picked. And yet, it is not. We need to overcome the barriers. Governments are often in the best position to make this happen. One of the ways they can act is with accurate information – helping us measure and understand the costs and benefits. Another way is to help make it affordable. One other difficulty is that costs and benefits fall on different people.

We need financing instruments that improve affordability and align incentives. And we need to make energy efficiency the norm. There are soft ways of doing this, through information and communication campaigns to change behaviour. And there are harder ways, such as building codes and standards for household appliances and vehicles.

In Asia, Japan has been the standout in terms of improving energy efficiency. However, in recent years, China and countries in Southeast Asia have also been placing increased emphasis on improving the efficiency of energy use, in recognition of the need to curb demand growth, reduce energy imports and mitigate pollution. But there remains much scope for efforts to be stepped up.

Focusing specifically on Asean, what do you think are the region’s energy challenges? What impact will Asean integration have on the region’s energy landscape?

Together with China and India, the ten Asean (Association for Southeast Asian Nations) member states really are shifting the centre of gravity of the global energy system toward Asia. Since the Asian Financial Crisis, an economic revival coupled with ongoing urbanisation and industrialisation has driven brisk growth in energy use.

There remains great scope for energy demand in the region to rise as its energy use on a per capita basis remains very low and it is home to almost 600 million people. But there are a number of challenges the region will have to overcome if it is to meet its energy needs. These include phasing out fossil-fuel subsidies, increasing access to modern forms of energy and improving energy efficiency.

Given the growing importance of the region, we are currently preparing a major study on energy in Southeast Asia, which will be released as a Special Report in our World Energy Outlook series at the East Asian Summit Energy Minister’s Meeting in Indonesia in late September.

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