The past twelve months have seen some important developments in international climate policy, preparing the ground for the adoption of new measures in the coming years. The UN negotiations on climate change held in December 2009 in Copenhagen did not result in a legally-binding agreement on limiting emissions of greenhouse gases.
However, the Copenhagen Accord – the agreement that was reached at the meeting and with which all major emitting countries and many others subsequently associated themselves – does set an objective of limiting the increase in global temperature to 2°C above pre-industrial levels. It also establishes a goal for the industrialised countries to mobilise funding for climate mitigation and adaptation in developing countries of $100 billion per year by 2020, and requires the industrialised countries to set emissions targets for 2020. The IEA’s 2010 World Energy Outlook, released earlier in November, sets out an energy pathway broadly consistent with the 2°C goal in its 450 Scenario.
Constraining greenhouse gas emissions will involve a major shift away from fossil fuels and dramatic increases in the use of renewable energy, nuclear power and carbon capture and storage, and much greater energy efficiency. Renewable energy, in particular, is key to decarbonisation. In the 450 Scenario, primary renewable energy (excluding traditional biomass) grows four-fold between 2008 and 2035. The greatest increase in the use of renewables is in the power sector, where the share of electricity from hydropower, wind, solar, biomass, geothermal and marine power combined grows from 19% to 45%. Renewables also meet growing shares of energy demand in transportation and heat. The use of biofuels grows more than eight‑fold between 2008 and 2035, meeting 14% of transport fuel demand by 2035 (up from 2% now). The share of modern renewables in heat production in industry and buildings (including district heating) increases from 10% to 21%.
Expanding the role of renewable energy sources is vital to reach a more secure and sustainable energy path. The potential is unquestionably large. How quickly their contribution to meeting the world’s energy needs grows hinges critically on the strength of government support to make renewables cost‑competitive with other energy sources and technologies, and to stimulate technological advances. Although renewables are expected to become increasingly competitive as fossil‑fuel prices rise and renewable technologies mature, government support will still need to expand to ensure their contribution to the global energy mix increases at the pace necessary to avoid dangerous climate change.
We estimate that government support worldwide for electricity from renewables and for biofuels totalled $57 billion in 2009. In the 450 Scenario, total support grows to $305 billion (in year-2009 dollars), or 0.25% of global GDP, by 2035. Between 2010 and 2035, 58% of the support goes to renewables‑based electricity. Support per unit of generation on average drops over time, from $55 per megawatt-hour (MWh) in 2009 to $20/MWh by 2035, as renewable energy technologies become more competitive.
Similar to electricity, the cost of producing biofuels today is often higher than the current cost of imported oil, so strong government incentives are usually needed to make them competitive with oil‑based fuels. Global government support in 2009 was $20 billion, the bulk of it in the US and the European Union. It rises to $127 billion by 2035, helping make biofuels increasingly cost-competitive with gasoline and diesel.
Government support for renewables can be justified by the long‑term economic, energy‑security and environmental benefits they can bring, though attention needs to be given to the cost‑effectiveness of support mechanisms. Government support typically raises costs to the economy as a whole, but the benefits can be significant too: lower carbon dioxide emissions; reduced imports of oil; reduced local pollution (notably, lower emissions of sulphur dioxide and nitrogen oxides); moderating effects on rising fossil fuel prices and reduced vulnerability to price variability; greater long term energy supply security through supply diversification; reduced adaptation costs; trade benefits for countries that manufacture and export related equipment; employment benefits; and benefits for rural development.