WEO 2013 or The Art of Reframing the Energy Challenge (part 1)

15 11 2013

Preface: this blogpost has been written in collaboration with Austrian energy experts Michael Cerveny and Andreas Veigl. Thanks for their substantial contributions!

A few days ago the new World Energy Outlook has been released by the International Energy Agency (IEA). For many experts, consultants, stakeholders it is like an annual “bible” providing tons of informations, scenarios, graphics, and analysis on a high level. And indeed it is worth reading. But even more important than the 700+ pager itself are the summaries and the presentations to press. There is intense media coverage of the report and statements by IEA chief economist Fatih Birol. The question of media focus is decisive for the energy debate in many countries. Vienna again had the privilege to host a presentation of the World Energy Outlook only one day after the worldwide release in London. Again OMV invited to magnificent Hofburg for the WEO presentation and a panel discussion with Birol, OMV CEO Gerhard Roiss and Fabrizio Barbaso, who represents the EU-Commission. A webcast of the event can be watched online.

Why is that important? As the WEO provides so many different information the question is what do decision makers and stakeholders take with them? In 2012 the public message was clear: shale revolution, Saudi America, new geopolitical situation, enormous importance of China. It left traces in the public energy debate. Everybody believed the shale boom, substantial critics were overheard for a long time.

So what message can be picked this year? WEO2013 provides a variety of possibilities.

weo_carbonIn Fatih Birol´s presentation it became very obvious that the challenge of tackling climate change is substantial and – according to the “New Policy Scenario” (the central one of the WEO) – we are now on track to a global warming of 3,6 degree C. A real disaster remembering the messages of the recently published IPCC-report. In his chart Birol very clearly pointed out that after 2035 we have nearly burned up our carbon budget to keep the 2 degree C target. Until 2035 a further increase of energy demand and fossil energy supply is projected with only a weak decrease of the fossil energy share.  (82 percent now to 74 percent in 2035) The increase will primarily come from non-OECD countries. (source: World Energy Outlook: Presentation to press)

So what have the main stories been in European media?

Has it been the climate disaster we are facing? Has it been the message that the shale revolution looks like a temporary phenomenon as Birol stated too? No, a new disaster has been identified. Some examples:

Guardian: US’s cheap energy pricing out UK industry

Neue Zürcher Zeitung claims Europe to become the loser on energy markets “Europa ist der Verlierer am Energiemarkt

Der Spiegel focuses on shale gas, price and competitiveness: “Fracking verschafft US-Industrie Vorteile gegenüber Europa

Sueddeutsche Zeitung “Quellen der Angst“ (mentioning at least some critical aspects on this sort of industrial panic)

See also FAZ here (http://www.faz.net/aktuell/wirtschaft/unternehmen/welt-energiebericht-amerika-wird-groesster-erdoelproduzent-der-welt-12660919.html) or Austrian “Die Presse” and “Kurier” and many others.

So the focus has been lead from climate change to competitiveness powered by this chart taken from the presentation to press. It shows a scenario for the development of market shares for energy intense goods between 2011 and 2035:

share_energyintenseindustry(source: World Energy Outlook: Presentation to press)

The inability to understand the implications of exponential growth

The media attendance to WEO2013 highlights the relation between energy and competitiveness. Disparities in energy prices between countries and regions, especially for natural gas and electricity, have widened significantly and will – according to the IEA – not vanish completely in the next two decades. Especially the fact that the US-industry enjoys gas and electricity prices that are two to three times lower than in Europe has fueled the “hype” for “cheap” shale gas around the world. Industry leaders in Europe are pushing governments clearly into the direction of making fracking possible and of reducing the “market-distorting” subsidies for renewables. Fatih Birol himself stated several times that he is not optimistic that the US shale boom can be transferred to Europe and China. (eg this interview a few days ago)

The slide above is a major reference for industry representatives like Georg Kapsch, who is President of the Federation of Austrian Industries. In his opening speech in Hofburg he interpreted it as “a nightmare for us” to lose one third of our energy intensive industries exports till 2035.

BUT!

Is Europe’s energy-intensive industry[1] really going to lose one third of its exports according to the IEA’s World Energy Outlook? Does it lose anything?

No, not at all! Austrian energy experts Michael Cerveny and Andreas Veigl allowed themselves to calculate the growth based on the data in the WEO: Having a closer look at the growth rates in this scenario Europe’s exports of energy-intensive goods will grow by 2.2 percent per year!

annualgrowthrates
How did they calculate this figure? On page 33 the IEA reveals the underlying assumptions for their scenario. The growth rate for world GDP is assumed with 3.6 % per year (from the base year 2011) through to 2035. As the IEA does not reveal which growth rate for the exports of the energy-intensive industry they assumed,  above mentioned annual growth rate of 3.6 % for world GDP has been taken into account. (a plausibel assumption in our view) The graph shows the result of applying the IEA’s assumption of exponential growth to the export volume.
Within the 24 years period between 2011 and 2035 the global volume of exports of energy-intensive goods grows by a staggering 134 %. As usual the implications of (exponential) growth over a longer period are ignored by most people.
exportmarketintensivegoods
Europe’s loss of ten percent-POINTS of the market-SHARE does not mean that the European exports are set to shrink. In fact they are going to grow by more than two percent per year. As even higher growth rates for other countries or regions (e.g. 5.2 to 6.6 % per year for China, India and Middle East) are predicted by the IEA the logical result is the loss of Europe’s market SHARE. By the way, China’s natural gas and electricity price levels are and will be in the same range as those in Europe. So there might be other reasons for the “low” growth rates of Europe’s export industry than just the price of energy.

Talking about disaster… and the industrial spin.

So the interpretation of the WEO2013 chart is really misleading as it indicates that the European energy-intensive industry is about  to shrink.  Despite scepticism that the assumed growth rates in the WEO scenario will be possible (talking about “Limits to Growth”) the WEO2013 data is not a substantial reason to panic for European industry. Expect possibly one: the fact that if the IEA-scenario will come true, our climate will collapse and this might be the real disaster of our and coming generations. But that is not part of a spin succesfully placed by industry represenatives.

Postface: This blog post is an invitation for further discussion. Do not hesitate to comment (and criticize) our assumptions and interpretations.

Another interesting blog post on the WEO2013 has been written by Andreas Lindinger.

A different German language FactSheet on the messages of WEO2013 can be found here: Klima- und Energiefonds


[0] Wikipedia:  Framing in the social sciences refers to a set of concepts and theoretical perspectives on how individuals, groups, and societies organize, perceive, and communicate about reality. Framing is commonly used in media studies, sociology, psychology, and political science.

[1] The energy-intensive industry employs almost 10 % of all industry jobs and comprises the following industries: Chemicals, Aluminium, Cement, Iron and steel, Pulp and paper, Glass, Refining


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5 responses

15 11 2013
AndreasLindinger.AT » World Energy Outlook 2013: The Good, the Bad and the Really Ugly

[…] A great analysis on the IEA’s World Energy Outlook and the spin it got by the media was written by Georg Guensberg: The Art of Reframing the Energy Challenge. […]

15 11 2013
Joe

danke für die interessante zusammenfassung!
was mich (ev. was für Teil2) besonders interessieren würde ist: was heißen die 3.6°C auf die wir zusteuern de facto – zb., für meine Familienplanung? Geht sich da noch was aus?

Oder: was bringt’s jetzt noch sich um die Umwelt zu kümmern, angesicht der bekannten Trägheit und Handlungsunflexibilität der politischen Systeme weltweit?

Radikale Fragen – i know – aber angesichts der tatsachen, angebracht, finde ich. What do you guys think?

LG!

10 12 2013
guensberg

Danke und sorry für die späte Rückmeldung. In Familienplanungen mische ich mich natürlich nicht ein🙂 Prinzipiell denke ich, dass wir trotz all der Skepsis für die Zukunft, nicht vergessen sollten, dass der Mensch ein enorm fähiges und auch anpassungsfähiges Wesen ist. Außerdem ist die Hoffnung noch nicht ganz verloren, dass man das Ruder zumindest teilweise noch rumreißen kann. Ich kann mich erinnern, diese Frage schon vor zwanzig Jahren gehört zu haben. Die Kinder von damals sind jetzt so alt, dass sie selbst entscheiden können, wie sie Zukunft gestalten. Insofern würde ich da bissl Druck rausnehmen.

16 11 2013
IvokainKrieg

If You wake up early, you can preserve your live style,
If you wake up later, you can keep your dignity
If you pass that point, you can only save your bacon.

3 07 2014
WEO 2013 or The Art of Reframing the Energy Challenge (part 1)

[…] Europe’s energy-intensive industry[1] really going to lose one third of its exports according to the IEA’s World Energy Outlook? Does […]

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