Over $48 Trillion Energy Investment Needed by 2035, IEA Report Concludes


It will cost $48 trillion to keep up with rising energy demand worldwide over the next two decades, a newly released report by the International Energy Agency concludes.

That’s a massive jump from the $16 trillion predicted the last time the report was fully updated in 2003.

“The headline numbers revealed by this analysis are almost too large to register,” the IEA World Energy Investment Outlook special report notes.

The costs of supplying the world with energy, the report finds, have already more than doubled since 2000. And the costs of fossil fuels are projected to rise, even without accounting for any increase in demand. By 2035, the world’s energy will require a $2 trillion investment every year. The vast majority of the $1.6 trillion spent on energy last year – a total of $1.1 trillion – went to extracting fossil fuels, oil refining and building power plants that burn fossil fuels.

Over the next two decades, the world would need to invest over $20 trillion to replace production from aging, declining oil and gas fields.

To put that $20 trillion into perspective, the Iraq war cost the U.S. government $1 trillion over its nine years, according to White House estimates. That means the financial investment needed by fossil fuel projects over the next two decades would equal the cost to U.S. taxpayers of twenty Iraq wars.

An alternate plan, aimed at limiting climate change to 2 degrees Celsius, would add another $250 billion to the average yearly price tag, the IEA adds, and require a focus on energy efficiency and renewable energy sources and reduced spending on oil, gas and coal.

But this approach could ultimately be less expensive, because less will need to be spent compensating for the harmful effects of global warming.

“There is a real risk of shortfalls, with knock-on effects on regional or global energy security,” said Maria van der Hoeven, the head of the IEA, which advises 29 highly industrialized nations on energy policy, “as well as the risk that investments are misdirected because environmental impacts are not properly reflected in prices.”

The report was written with input from officials from some of the world’s largest and most powerful investment firms, including Deutsche Bank, Morgan Stanley and Barclay’s Capital, along with major energy companies like Shell, Schlumberger and General Electric.

It casts a pall over two cornerstones of the Obama administration’s energy policy: the hope that the shale rush will help the U.S. achieve energy independence and the notion natural gas can serve as a “bridge” to a low-carbon future.

A Shale Bust?

When it comes to the shale rush, the IEA sounds a particularly pessimistic note for the U.S, projecting that the amount of shale oil produced nationwide will begin falling off within the decade. The reality may be even more bleak for shale oil producers, as the federal government recently reported that two thirds of the nation’s expected shale gas assets cannot be produced with modern technology.

“[T]he rise in non-OPEC supply starts to run out of steam in the 2020s,” the report predicts, referring to unconventional reserves, largely shale oil and gas.

The conclusion represents a dramatic about-face for the IEA, which had predicted just two years ago that by 2020, the U.S. would be producing more oil than Saudi Arabia because of the shale oil boom.

The IEA also points out that, for now at least, shale projects are a money-loser. “[T]he tight oil and shale gas industry continues to invest, in aggregate, more than it earns, although this gap is narrowing,” the report notes on p. 80. This seems to also be a turn-around for the agency, which in a 2012 report “Golden Rules for a Golden Age of Gas,” said that experience had suggested that shale gas could be economically produced.

The agency’s twin reversals deal a serious blow to the Obama administration’s hope that domestic shale oil could transform America’s energy prospects.

Bridging the Gap

The report also suggests that the Obama administration may have it backwards when it comes to creating a “bridge” to reduced climate change.

In a New York Times interview on Tuesday, President Obama renewed his call to use natural gas to help wean the world off coal and oil. “Natural gas, the president said, ‘is a useful bridge’ to span ‘where we are right now and where we hope to be — where we’ve got entirely clean energy economies based around the world,’” columnist Thomas Friedman wrote.

But the $9.2 trillion the report predicts would be spent on natural gas and its infrastructure represents a lot to invest in a transitional fuel. 

The IEA analysis reaches a conclusion quite different from President Obama’s notion that natural gas can serve as a “bridge.” Instead, encouraging investments in renewables can help transition away from fossil fuels. “Consistent and credible policies and innovative financing vehicles can provide the bridge to a low-carbon energy system,” the report concludes.

As the shale boom has drawn the attention of Wall Street, investment in renewable energy worldwide has dropped sharply.  Investment in renewable energy sources, the IEA notes, was on the rise between 2000 and 2011 – from $60 billion to nearly $300 billion a year – but then fell to just $250 billion this past year.

Compare that with the $1.1 trillion invested that same year in more fossil fuels.

Continuing down the current path will have dire consequences for the climate, the IEA warns.

“The investment path that we trace in this report falls well short of reaching climate stabilization goals,” the report says, adding that investing an extra $5.5 trillion in efficiency measures would cut energy consumption by 15 percent by 2035.

Storing up Trouble

The report concludes that it would cost a total of $53 trillion to shift to an energy policy that would allow the world to keep climate change below the critical 2 degree threshold. And, crucially, that plan means spending money in entirely different ways than a plan centered on the use of natural gas and other fossil fuels.

In other words, more natural gas investment would represent a choice to move away from renewable energy, not a bridge to lower greenhouse gas emissions.

The extra costs pale in comparison to the price tag of damages that would be done by the resulting climate change. Estimates vary, but an analysis by the World Bank’s former chief economist, Nicholas Stern, concluded that failing to address climate change could shave as much as 20 percent from the world’s total gross domestic product.

In 2012, the world’s total gross domestic product was roughly $72.6 trillion, according to the World Bank, meaning that 20 percent would have represented roughly $15 trillion.

It’s worth noting that the low-carbon approach analyzed by the IEA would carry its own risks. The IEA‘s path relies on the development of carbon capture and sequestration technology and the expansion of nuclear energy (DeSmog has previously covered substantial problems associated with both carbon capture and nuclear).

Other energy plans, like the Solutions Project, call for a transition to 100 percent renewable energy. Nonetheless, this IEA report helps to provide concrete numbers to compare potential costs of action and inaction on climate change worldwide.

“Many of our hopes and our worries about the future of the global energy system boil down to questions about investment,” IEA Executive Director Maria van der Hoeven said in remarks at the launch of the report.

“Will policies and market conditions create enough investment opportunities, in the regions and sectors where they are needed? Will financing be available so that investors can take up these opportunities? And will policy makers succeed in steering investment towards a cleaner, more secure energy system – or are we locking in technologies and patterns of consumption that store up trouble for the future?” she asked.

Photo Credit: Man’s hands analysing the expenses and a bar chart, via Shutterstock.

Sharon Kelly is an attorney and freelance writer based in Philadelphia. She has reported for The New York Times, The Guardian, The Nation, National Wildlife, Earth Island Journal, and a variety of other publications. Prior to beginning freelance writing, she worked as a law clerk for the ACLU of Delaware.

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