GHG emissions - outlook from IEA (Outlook 036) - Assessment published Jun 2009

Indicator definition

Definition: This indicator illustrates the projected trends in energy related greenhouse gas emissions. Greenhouse gas emissions (total) refer to the sum of carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), perflourocarbons (PFCs), hydroflourocarbons (HFCs) and sulphur hexafluoride (SF6), weighted using their 100-year global warming potentials.

Model used: World Energy Model (WEM)

Ownership: International Energy Agency

Temporal coverage: 1990 - 2030

Geographical coverage: ^{Transition countries, excluding the Russian Federation (Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Estonia, Serbia and Montenegro, the Former Yugoslav Republic of Macedonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Republic of Moldova, Romania, Slovenia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, Cyprus, Malta); the Russian Federation; OECD Europe (Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, Turkey, the United Kingdom); USA; India; China.}

Units

Policy context and targets

Context description

Over a decade ago, most countries joined an international treaty -- the United Nations Framework Convention on Climate Change (UNFCCC) -- to begin to consider what can be done to reduce global warming and to cope with whatever temperature increases are inevitable. Recently, a number of nations have approved an addition to the treaty: the Kyoto Protocol. The Kyoto Protocol, an international and legally binding agreement to reduce greenhouse gases emissions world wide, entered into force on February 16th 2005. The 1997 Kyoto Protocol shares the Convention's objective, principles and institutions, but significantly strengthens the Convention by committing Annex I Parties to individual, legally-binding targets to limit or reduce their greenhouse gas emissions.

To date most countries in the Pan-European region ratified the Kyoto Protocol, notably:  Annex I: Belarus, Croatia,  Russian Federation, Ukraine, EU 27, Norway, Iceland, Liechtenstien, Switzerland. Non-Annex I countries: Albania, Armenia, Azerbaijan, Bosnia and Herzegovina, Georgia, Kyrgyzstan, Kazhakhstan, Former Yugoslavian Republic Macedonia, Montenegro, Republic of Moldova, Serbia, Tajikistan, Turkey,  Turkmenistan, and Uzbekistan.

31 countries and the EEC are required to reduce greenhouse gas emissions below levels specified for each of them in the treaty.  The Individual Targets for Annex I Parties are listed in the Kyoto Protocol's Annex B. These add up to a total cut in greenhouse-gas emissions of at least 5% from 1990 levels in the commitment period 2008-2012.

The EU Commission's Progress Report towards achieving the Kyoto objectives in the EU and the individual Member States is required under the EU Greenhouse Gas Monitoring Mechanism (Council Decision 280/2004/EC concerning a mechanism for monitoring Community GHG emissions and for implementing the Kyoto Protocol).

Targets

Pan European level
The majority of the countries in the Pan European region and the EEC are required to reduce greenhouse gas emissions below levels specified for each of them in the Kyoto Protocol.  The Individual Targets for Annex I Parties are listed in the Kyoto Protocol's Annex B. These should add up to a total cut in greenhouse-gas emissions of at least 5% from 1990 levels in the commitment period 2008-2012.

EU Level

For the EU-15 Member States, the targets are those set out in Council Decision 2002/358EC in which Member States agreed that some countries would be allowed to increase their emissions, within limits, provided these are offset by reductions in others.

The EU-15 Kyoto Protocol target for 2008-2012 is a reduction of 8 % from 1990 levels for the basket of six greenhouse gases. For the new Member States, the candidate countries, other EEA member countries, and other Annex 1 countries the targets are included in the Kyoto Protocol.

Overview of national Kyoto targets (reduction from base year levels):

Non-Annex I countries are not bound to such commitments and do not expect reduction of the GHG emissions.

The post 2012 climate regime will look different compared to Kyoto. In March 2007, the Council of the European Union decided that the EU would make a firm independent commitment to achieving at least a 20 % reduction of greenhouse gas emissions by 2020 compared to 1990. On 23 January 2008 the European Commission put forward a package of proposals that will deliver on the European Union's ambitious commitments to fight climate change and promote renewable energy up to 2020 and beyond. In December 2008 the European Parliament and Council reached an agreement on the package that will help transform Europe into a low-carbon economy and increase its energy security. The Package sets a number of targets for EU member states with the ambition to achieve the goal of limiting the rise in global average temperature to 2 degrees Celsius compared to pre-industrial times including: GHG reduction of 20% compared to 1990 by 2020 (under a satisfactory global climate agreement this could be scaled up to a 30% reduction); 20% reduction in energy consumption through improved energy efficiency, an increase in renewable energy's share to 20% and a 10% share for sustainably produced biofuels and other renewable fuels in transport.

Other related goals and targets:

EU

- max global temperature rise of 2o (EC 6EAP and Councils), meaning global concentrations of less than 450 ppm CO2 equivalent

- for developed countries: 60 to 80% reductions in greenhouse gas emissions (2004 Environment Council)

- global CO2 emissions should decline after 2025, by as much as 50% of 1990 levels (EC 2006 Green paper on energy)

Related policy documents

• Climate and Energy package 2009
• Council Decision (2002/358/EC) of 25 April 2002
  Council Decision (2002/358/EC) of 25 April 2002 concerning the approval, on behalf of the European Community, of the Kyoto Protocol to the United Nations Framework Convention on Climate Change and the joint fulfilment of commitments thereunder.
• Greenhouse gas monitoring mechanism
  Decision No 280/2004/EC of the European Parliament and of the Council of 11 February 2004 concerning a mechanism for monitoring Community greenhouse gas emissions and for implementing the Kyoto Protocol
• Kyoto Protocol to the UN Framework Convention on Climate Change
  Kyoto Protocol to the United Nations Framework Convention on Climate Change; adopted at COP3 in Kyoto, Japan, on 11 December 1997
• Sixth Environment Action Programme
  DECISION No 1600/2002/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 22 July 2002 laying down the Sixth Community Environment Action Programme
• UN Framework Convention on Climate Change
  United Nations Framework Convention on Climate Change

Methodology

Methodology for indicator calculation

CO2 emissions from fuel combustion are derived from the detailed projections of energy consumption. The projections are made with the use of the World Energy Model 2004.

Overview of the World Energy Model 2004 (WEM)

The WEM is a mathematical model made up of five main modules: final energy demand, power generation; refinery and other transformation; fossil fuel supply and CO2 emissions. Figure C1. (World Energy Outlook, 2004, p.532) provides a simplified overview of the structure of the model.

The main exogenous assumptions concern economic growth, demographics, international fossil fuel prices and technological developments. Electricity consumption and electricity prices dynamically link the final energy demand and power generation modules. Primary demand for fossil fuels serves as input for the supply modules. Complete energy balances are complied at a regional level, and the CO2 emissions of each region are then calculated using derived carbon factors.

For each sector and fuel, CO2 emissions are calculated by multiplying energy demand by an implied carbon emission factor. Implied emission factors for coal, oil and gas differ between sectors and regions, reflecting the product mix. They have been calculated from year 2002 IEA emission data for all regions.

The IEA's WEM is a principal tool used to generate detailed sector-by-sector and region-by-region projections for the Reference and the Alternative Scenarios. (see definitions of scenarios under section reference scenario). The model has been updated and revised over years and the development process continues.

Key model assumptions for the reference case

Governmental policies and measures
The reference Scenario takes into account only those governmental policies and measures that were already enacted - though not necessary implemented - as of min-2004.   The Reference Scenario does not include possible< potential or even likely future policy initiatives. Major new energy policy initiatives will inevitably be implemented during the projection period, but it is difficult to predict which measures will eventually be adopted and how they will be implemented, especially towards the end of the projection period.

Although the Reference Scenario assumes that there will be no change in energy and environmental policies through the projection period, the pace of implementation those policies and the way they are implemented in practice are nonetheless assumed to vary by the fuel and region. For example electricity and gas market reforms are assumed to move ahead, but at varying speeds among countries and regions. In all cases, the share of taxes in energy process is assumed to remain unchanged, so that retail process are assumed to change directly in proportion to international prices. Similarly, it is assumed that there will be no changes in national policies on nuclear power. As a result, nuclear energy will remain an option for power generation only in those countries that have not officially banned it or decided to phase it out.

Macroeconomic factors
Economic growth is by far the most important driver of energy demand. The link between total energy demand and economic output remains close. Detailed GDP assumptions by region are set out in Table below.

Economic Growth Assumptions (average annual growth rates, in %)

Population
Population growth affects the size and composition of energy demand, directly and through its impact on economic growth and development. The WEO population growth rate assumptions are drawn from the most recent UN populations' projections contained in World population Prospects: the 2002 Revision. Detailed populations assumptions by region are set out in Table below.

Population growth assumptions (average annual growth rates, in %)

Energy Prices
As in previous additions of the WEO, average and-user process for oil, gas and coal are derived from assumed price trends on wholesale or bulk markets. Tax rates are assumed to remain unchangeable over the projection period. Final electricity prices are based on marginal power generation costs. The assumed price paths assumed in the table presented below should not be interpreted as forecasts. Rater, they reflect IEA judgment of the prices that will be needed to encourage sufficient investment in supply to meet projected demand over the Outlook period.

Fossil-Fuel Price Assumptions (in year-2000 dollars)

Technological development
Technological innovation and the rate of development of new technologies for supplying or using energy are important considerations. In general, it is assumed that available end-use technologies become steadily in use and the overall intensity of energy consumption will depend heavily on the rate of retirement and replacement of the stock of capital. Since the energy-using capital stock in use today will be replaced only gradually, most of the impact of technological developments that improve energy efficiency will not be felt until near the end of the projection period.

The rate of capital-stock turnover varies considerably according to the type of equipment. Most cars and trucks, heating and cooling systems and industrial boilers will be replaced by 2030. on the other hand, most existing buildings, roads, railways and airports, as well as many power stations and refineries will still be in use then. The very long life of this type of energy-capital stock will limit the extent to which technological progress can alter the amount of energy needed to provide a particular energy service. Retiring these assets before the end of their normal lives is usually costly and would, in most cases, require major new governmental initiatives - beyond those assumed in the Reference Scenario. Refurbishment can, however, achieve worthwhile improvements in energy efficiency in some cases.

Technological developments will also affect the costs of energy supply and the availability of new ways of producing and delivering energy services. Power generation efficiencies are assumed to improve over the projection period, but at different rates for different technologies. Towards the end of the projection period, fuel cells based on hydrogen are expected o become economically attractive in some power generation applications ad, to a much smaller extent, also expected to improve, lowering the unit production costs and opening up new opportunities for developing resources. But the Reference Scenario assumes that no new breakthrough technologies beyond those known today will be used before 2030.

The World Alternative Scenario

WEO also considers Alternative policy Scenario to analyze how the global energy market could evolve were countries around the world to adopt a set of policies and measures that they are either currently considering or might reasonably be expected to implement over the projection period. The purpose of this scenario is to provide insights into how effective those policies might be in addressing environmental and energy-security concerns.

Methodology for gap filling

The development and running of the WEM requires access to huge quantities of historical data on economic and energy variables. Most of the data are obtained from the IEA's own databases of energy and economics statistics. A significant amount of additional data from a wide range of external sources is also used.

The parameters of the demand-side modules' equations are estimated econometrically, usually using data fro the period 19971-2002. Shorter periods are sometimes used where data are unavailable or significant structural breaks are identified. To tae into account expected changes in structure, policy or technology, adjustments to these parameters are sometimes made over the Outlook period, using econometric and other modeling techniques. In regions such as transition economies, where most data are available only from 1992, it has not been possible to use econometric estimations. In such cases, IEA results have been prepared using assumptions based on cross-country analyses or expert judgment.

Simulations are carried out on annual basis. Demand modules can e isolated and simulations run separately. This is particularly useful in the adjustment process and in sensitivity analyses of specific factors.

The WEM makes use of wide range of software, including specific database management tools, econometric software and simulation programmes.

Methodology references

• World energy outlook 2004 IEA (2004) International Atomic Agency (2004) . World energy outlook 2004, OECD/IEA, Paris. Online not available

Uncertainties

Methodology uncertainty

In common with all attempts to describe future market trends, the energy projections presented in the Outlook are subject to a wide range of uncertainties energy markets could evolve in ways that are much different from either the Reference Scenario or the Alternative Policy Scenario. The reliability or WEM projections depends both on how well the model represents reality and on the validity of the assumptions it works under.

Macroeconomic conditions are, as ever, a critical source of uncertainty. Slower GDP growth than assumed in both scenarios would cause demand to grow less rapidly. Growth rates at the regional and country levels could be very different from those assumed here, especially  over short periods. Political upheavals in some countries could have major implications for economic growth. Sustained high oil process  which are not assumed in either of WEM scenarios – would curb economic growth in oil importing countries and globally in the neat term. The impact of structural economic changes, including the worldwide shift from manufacturing to service activities, is also uncertain, especially late in the projection period.

Uncertainty about the outlook for economic growth in China is particularly acute.

The effects of resource availability and supply costs on energy process are very uncertain. Resources of every type of energy are sufficient to meet projected demand through to 2030, but the future costs of extracting and transporting those resources is uncertain – partly because of lack of information about geophysical factor.

Changes in government energy and environmental policies and the adoption of new measures to address energy security and environmental concerns especially climate change, could have profound consequences for energy markets. Among the leading uncertainties in this area are: the production and pricing policies of oil-producing countries, the future of energy-market reforms, taxation and subsidy policies, the possible introduction of carbon dioxide emission-trading and the role of nuclear power.

Improvements in the efficiency of current energy technologies and the adoption of new ones along the energy supply chain are a key source of uncertainty for the global energy outlook. It is possible that hydrogen-based energy systems and carbon-sequestration technologies, which are now under development, could dramatically reduce carbon emissions associated with energy use. If they did so, they would radically alter the energy supply picture in long term. But these technologies are still a long way from ready to be commercialized on a large scale, and it is always difficult to predict when a technological breakthrough might occur.

It is uncertain whether all the investment in energy-supply infrastructure that will be needed over the projection period will be forthcoming. Ample financial resources exist at a global level to finance projected energy investments, but those investments have to compete with other sectors. More important than the absolute amount of finance available worldwide, or even locally, is the question of whether conditions in energy sector are right to attract the necessary capital. This factor is particularly uncertain in the transition economies and in developing nations, whose financial needs for energy development are much greater relative to the size of their economies than they are in OECD countries. In general, the risks involved in investing in energy in non-OECD countries are also greater, particularly for domestic electricity and downstream gas projects. More of the capital needed for energy projects will have to come from private and foreign sources than in the past. Crating an attractive investment framework and climate will be critical to mobilizing the necessary capital. 

Data sets uncertainty

Major challenge is a reliable input data energy statistics. The statistics of IEA which provide a major input to the WEO, cover 130 countries worldwide. Most time-series begin in 1960 for OECD counties and in 1971 for non-OECD countries. Recently, however, maintaining the very high caliber of IEA statistics has become increasingly difficult, in many cases because national administrations have faced growing problems in maintaining the quality of their own statistics. Breaks in time series and missing data have become frequent in some countries. The lapses compromise the completeness of IEA statistics. They could seriously affect any type of analysis, including modeling and forecasting.

The projections from WEO should not be interpreted as a forecast of how energy markets are likely to develop. The Reference Scenario projections should rather be considered as a baseline vision of how the global energy system will evolve if governments will take no further action to affect its evolution beyond that which they have already committed themselves to.

Rationale uncertainty

In common with all attempts to describe future market trends, the energy projections presented in the Outlook are subject to a wide range of uncertainties energy markets could evolve in ways that are much different from either the Reference Scenario or the Alternative Policy Scenario. The reliability or WEM projections depends both on how well the model represents reality and on the validity of the assumptions it works under.