Mr. Tim Gould:

I thank the Chair. It is a great privilege to be invited to appear before the committee and I thank it for the opportunity to represent the IEA and provide members with some context for their important discussions. We very much welcome this engagement on these important issues.

At the IEA, I have the honour of co-leading a group that produces our world energy outlook, which is our attempt to think through some long-term scenarios for global energy out to 2040. I wish to provide context for some of the current big upheavals in the world of energy which are of great importance in terms of future effects. The first upheaval is the continued growth of oil and gas production in the United States as a result of the shale revolution. It has been an unparalleled expansion of oil and gas production and has important implications for market dynamics, trade flows and energy security discussions. There is another unfinished revolution in terms of the cost of key clean energy technologies. All members are aware that those costs have come down very sharply in recent years and will, in our view, continue to do so in the future. Solar photovoltaic, PV, is a good example, but I also highlight the evolution in terms of the costs of offshore wind power generation in Europe which will take place in the next few years.

The changing role of China in global energy is another issue of global importance.

China's past is not going to be the same as China's future. China is becoming a leading country in the deployment of some clean energy technologies. More than the half the solar PV deployed worldwide in 2016 and 2017 was in China. In a variety of areas, including electric mobility, we will find China taking a leading position. One of the most evocative phrases in this discussion is about the drive to make China's skies blue again. That has also had important implications for gas markets as getting coal-fired boilers out of the residential sector and industry in China and replacing them with gas is a big part of Chinese strategy to deal with air pollution.

These four upheavals show the importance of electricity in our lives and in the world of energy. There are a number of different aspects to that. While electric vehicles are obviously in people's minds, we would highlight a few other things. In emerging economies, demand for cooling is going to grow very strongly in the future. There are a range of applications at the intersection of energy and digitalisation that will have implications for electricity. There are many ways to think all of this through.

In the world energy outlook, we have a couple of scenarios that I wish to bring to the committee's attention. One of them is called the new policies scenario, which gives us an indication of where we are heading. We look at what governments are doing and say they want to do. That includes all of the nationally determined contributions under the Paris Agreement. We think through what they mean alongside continued technology development for the future of energy.

The second scenario I would like to bring to the committee's attention is the sustainable development scenario. For that, we took our inspiration from the sustainable development goals agreed at the end of 2015, in particular three energy related components, namely, alignment with the Paris Agreement, full, universal access to modern energy by 2030, and a reduction in the pollutants that cause poor air quality. We are assessing what else would need to happen to get us into a pathway that would be consistent with those ambitions.

Before I talk about the future, I would like to say a couple of words on where we are today. Slide 3 of the presentation shows the change in energy use globally in 2017. It was another big year for renewables but most of the growth was met by other fuels. After two years of decline, coal use rebounded in 2017. It was another large year for the increase in oil consumption while gas also had a 3% increase on the previous year. When we think about the future of global energy demand growth, it is not just a story about different fuels. It is also a story about the efficiency of energy use. At the IEA we are concerned that the flow of new energy efficiency policies and their stringency appears to be weakening at a time when it needs to redouble.

The next slide shows the end uses of energy around the world. The figure varies according to different end uses but overall only around 30% is covered by some sort of mandatory energy efficiency measure. There is an awful lot of work to be done to try to use what for us is the most important hidden fuel to reach global goals. The net result is shown on slide 5 in respect of energy related CO2 emissions. After three years that appeared to be setting quite an encouraging trend, when the levels plateaued between 2014 and 2016, they started edging higher once again in 2017, particularly because of that rebound in coal use. The starting point for our discussion is that we are moving in the opposite direction from the one mandated by the Paris Agreement, which of course refers to an early peak and subsequent rapid decline in greenhouse gas emissions.

One other potential shortfall is in the traditional part of the energy system, namely, oil and gas. Oil and gas investment has come down very sharply since the fall in oil prices in 2014. The fall in dollar terms is not necessarily representative of the fall in activity because costs have come down quite significantly over the same period.

We are concerned that if the dynamic shale sector in the United States is taken out, the pace of investment in other parts of the conventional oil and gas space will fall short of what may be needed to meet growth in demand in the coming years. That means that if we do not see some improvement, given where the level of demand is headed, we could see a tightening of markets some time in the early 2020s.

We have discussed some uncertainties. One thing about which we can be more sure which I would like to highlight is that the world will need more energy resources in the future. The median expectation based on UN population projections is that there will be an extra 1.7 billion on the planet between now and 2040, all of whom pretty much will be living in towns and cities. The design of cities, how they are heated and cooled and how we practice mobility are critical variables in assessing future global energy needs. Even with progressive improvements in energy efficiency, we are talking about a 30% increase in global primary energy demand between now and 2040. It can be viewed in different ways, but essentially it means adding China and India of today to the global energy balance or, alternatively, the United States and the European Union of today. That is an important element of how the discussion will be framed. How that growth in energy demand will be met is changing quickly. The scenario in the past 25 years was very different when compared to what is projected to happen in the next 25 in global energy demand. In the past 25 years we met the growth in demand primarily through the use of coal, oil and gas, but in the future coal will fall to the back of the pack, growth in the use of oil will be much less rapid, while there is an element of continuity attached to gas. However, the heavy lifting will be done by renewables and other low carbon sources of energy. That will give a different picture of the energy system as we move forward. The change in energy policy in China has been instrumental in some of these global trends.

I mentioned electrification at the beginning of my statement and return to it. There is an important story in terms of its growth and composition. As the committee knows, this is an area in which renewables are taking the lead. Two out of every $3 that go into the power generation sector, based on what we see and the policies in place, will go into renewables, led by solar photovoltaics and wind energy. In terms of volume, that means that India has to put in place an energy system the size of that in place in the European Union and that China needs to put in place an additional electricity system the size of that in place in the United States. When we talk about global trends in investment and emissions, the choices made in these countries will be critical. This is not just about investment dollars moving to electricity generation, the debate on energy security is also moving towards electricity because this is not a business as usual scenario for the global electricity sector. The electricity sector needs to operate much more flexibly than in the past. There are issues of market design that need to be tackled. There will be a much larger contribution from decentralised renewables in the system. A different way of approaching some of the complex systems for co-ordination and balancing is needed.

Electric vehicles are in the fast lane. Their use is growing rapidly in some countries, with Norway being a good example. Electric vehicles now account for some 40% of new vehicle sales. One million vehicles were added to the global electric fleet in 2017, but to put the matter in context, there are around 1 billion cars on the road worldwide.

There is likely to be a significant increase in the electric car fleet between now and 2040. That is where we might expect it to be, based on the things governments are stating they wish to do. That, together with efficiency improvements, will have major implications for the amount of oil used in passenger cars. Even though we will have a much bigger car fleet in 2040, according to our main set of projections, the amount of oil used in that car fleet will be lower than what we use today. This does not mean that the era of oil is over because passenger cars account for just 25% or 26% of global oil demand. There are other sectors that continue to push higher. I emphasise the role of sectors such as trucking, aviation, international shipping and petrochemicals in that context because they are the ones to watch from a policy perspective if we want to turn around the oil demand trajectory.

I have spoken about our new policy scenario. I would now like to say a couple of words about our alternative scenario which tries to hit three policy objectives related to climate, air quality and access. Many of the things about which I have spoken - the rise in renewables, increasing efficiency and the changes in China - are positive for global emissions trends. The development of solar photovoltaics in India is another very good example. However, all they succeed in doing is slowing the growth in global emissions. As I mentioned, we need to turn it around. Our sustainable development scenario tries to think through what it would mean to have that transformation in the global energy system. It is among the more ambitious of the scenarios that aim to achieve a 1.7° or 1.8° stabilisation of global average temperatures in 2100. It is clear from what is on the screen that this scenario would have significant implications for global primary energy use.

In the sustainable development scenario I am setting out what would the world look like in 2040? We would be alleviating many of the hazards about which I have spoken. There would be universal access to modern energy sources. There would be fewer premature deaths from poor air quality. We would be on track to meet obligations under the Paris Agreement. It would be a significantly more efficient and a much more electrified energy world. Rather than having 300 million electric vehicles on the road, in this scenario there would be closer to 900 million. This scenario would involve penalising the most carbon-intensive fuels. There would still be room in these circumstances for natural gas. In this scenario worldwide consumption of natural gas would increase by comparison with what is happening today. It varies according to different countries, regions and sectors and also over time. That is an important message.

I will set out how much this scenario would cost. Overall investment would have to increase by 15% compared with the first scenario. Most of the additional expenditure would be on the end-use side. This means that it would involve securing the efficiency improvements we believe are essential. Much more money would have to go into the electricity sector. A significant amount of investment in upstream gas and oil production would still be required. I would like to explain why that would be the case for oil. As members of the committee will be aware, production from existing oilfields declines quite rapidly over time. On average, a post-peak field will lose approximately 6% of its production every year. That 6% decline is much larger than anything one is likely to be able to generate on the demand side. That means that the big gap between production and demand would need to be filled with new projects.

There is still around $7 trillion worth of new investment in upstream oil and gas even in a scenario that is fully consistent with the Paris Agreement.

We need to be aware of the context that global energy-related CO2 emissions are on the rise again in 2017. There is still an awful lot to do to bring us back on to a Paris-compliant trajectory. Electrification and digitalisation are big trends for the future but they also create new policy dilemmas that need to be addressed. The big message from our sustainable development scenarios is that the world does not need to choose between climate, access and quality. We believe that there is an integrated way to deal with these three issues. We are talking about the need to reconfigure the investment flows into the energy sector but that does not mean that there is no need for investment in new oil and gas projects.

From the perspective of the International Energy Association, IEA, we remain ready to work not just with our member countries. We work increasingly with India, China, Indonesia, Brazil and South Africa, all of which are very close partners of the IEA, to ensure reliable, affordable and clean energy in the future.