Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Industry Agenda The Global Energy Architecture Performance Index Report 2013 Prepared in collaboration with Accenture December 2012 © World Economic Forum 2012 - All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system. The views expressed are those of certain participants in the discussion and do not necessarily reflect the views of all participants or of the World Economic Forum. REF 271112 This publication has been prepared for general guidance on matters of interest only, and the views expressed do not necessarily reflect those of the World Economic Forum, the World Economic Forum USA, or any of the contributing companies or institutions, nor does it constitute professional advice. The reader should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, the authors and distributors do not accept or assume any liability, responsibility, or duty of care for any consequences to the reader or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. Contents 3 Preface 4 The Energy Architecture Performance Index 2013 in Numbers 6 The Expert Panel’s View: The Use Case for the Energy Architecture Performance Index 8 Executive Summary Preface Over the past century, affordable energy has been a significant component of global economic growth and development. Now a transition is occurring across the global energy system to a degree and order of magnitude seen only a few times in human history and under completely distinct conditions on both supply and demand sides. The transition pathway from the current energy architecture to the new will look different for each country, with energy system objectives planned according to the trade-offs and complementarities surrounding the core imperatives of every energy system: managing risk to energy supplies while ensuring a country’s economic, social and environmental well-being. 10 1. The New Energy Architecture Challenge – Balancing the Energy Triangle 11 Defining Energy Architecture and the Energy Triangle 13 The Challenges Associated with the Transition to a New Energy Architecture Roberto Bocca Senior Director, Head of Energy Industries, World Economic Forum 14 A Tool for Transition – The Energy Architecture Performance Index 16 2. Understanding Performance on the Energy Architecture Performance Index 2013 17 The EAPI 2013 Rankings 18 Top Ten – Key Takeaways 21 Economic and Regional Clusters Analysis 24 3. Economic Growth and Development 25 Top Ten Economic Growth and Development Performers – Key Takeaways 32 4. Environmental Sustainability 33 Top Ten Environmental Sustainability Performers – Key Takeaway 38 5. Energy Access and Security 39 Top Ten Energy Access and Security Performers– Key Takeaways 44 6. Key Takeaways and Focus Areas 45 Key Takeaways 46 Focus Areas for Selected Regional and Economic Clusters 48 7. Definitions 50 8. Methodological Addendum 50 Methodology 50 EAPI 2013 Indicators: Selection Criteria and Profiles 51 Weighting: Approach and Rationale 56 Indicator Metadata 62 EAPI Data Limitations – A Global Rallying Call 66 Contributors and Data Partners Espen Mehlum Associate Director, Head of Knowledge Management and Integration, Energy Industries, World Economic Forum The World Economic Forum is pleased to present this report examining the factors for effective global transition to a new energy architecture, framed through the outputs of the Energy Architecture Performance Index (EAPI) a tool designed to help countries monitor and benchmark the progress of their transition against a series of indicators. The report considers what the new energy architecture might look like and how best-in-class enabling environments have already helped some high-ranking countries begin their transitions to better performing energy systems. The varying demands of each country’s energy architecture – the sometimes competing goals of economic growth and development, environmental sustainability, and energy access and security – form the crux of the index and this analysis. The New Energy Architecture project is conducted under the Forum’s Energy Industry Partnership with support from the authors of The Global Competitiveness Report and involves a range of business, government and civil society constituents from the energy industry and other related sectors. The project uses a methodology that identifies the key performance indicators that can impact the effectiveness of the transition to a new energy architecture and more effectively underpin economic growth and development, environmental sustainability, and energy access and security. The World Economic Forum partnered with Accenture and collaborated with Forum Industry Partners and other expert constituents to drive the dialogue and research. Representatives from 28 global companies, government agencies and civil society are actively involved, including the Akio Morita School of Business, Bloomberg New Energy Finance, Chevron, the China Center for Energy Economics Research at Xiamen University, the Department of Energy and Environmental Protection in Connecticut, the Environmental Defense Fund, Hewlett-Packard, the International Electrotechnical Commission, the International Energy Agency, the Joint Institute for Strategic Energy Analysis, the US National Renewable Energy Laboratory, Maplecroft, Royal Dutch Shell, Solar Century, Suzlon Energy, the UK Energy Research Centre and the United Nations Industrial Development Organization. Representatives from these organizations contributed strategic direction and thought leadership through an Expert Panel; its members are listed at the end of the report. Through events in Austria, Brazil, France, India, Indonesia, Japan, Myanmar, the People’s Republic of China, South Africa, Turkey and the United Kingdom, the project has engaged additional business, government and civil society leaders. The EAPI 2013 will prove to be a useful addition to the global dialogue around the transition to a new energy architecture and a practical tool for energy decision-makers. This version should be seen as an initial effort, and the team behind it will look to expand the EAPI over future iterations to include better data, where available, and other relevant indicators. The Global Energy Architecture Performance Index Report 2013 3 The Energy Architecture Performance Index 2013 in Numbers 105 16 64 0.75 /1 36% 89 66% US$ 46,000 12% US$ 7.14 countries’ energy systems assessed countries assessed with a fossil-fuel subsidy in place the average total primary energy supply from alternative or renewable energy sources (including biomass and large-scale hydropower) of the top 10 performers compared with a 29% Energy Architecture Performance Index (EAPI) 2013 sample average of countries assessed are net energy importers the average nuclear total primary energy supply of the top 10 performers compared with a 6% EAPI 2013 sample average 9% the average total primary energy supply from hydropower of the top 10 performers compared with a 5% EAPI 2013 sample average 4 The Global Energy Architecture Performance Index Report 2013 indicators used highest score achieved on the EAPI 2013 compared with a 0.55 / 1 EAPI 2013 sample average countries in the EAPI sample have renewable energy support policies in place, in the form of regulation, fiscal incentives or public financing the average GDP per capita of the top 10 EAPI 2013 performers, bar Latvia. An average GDP per capita of US$46,000 puts these countries within the top 25 countries globally on this metric the average EAPI 2013 sample score for energy intensity (GDP per unit of energy use) compared with an EU15 average score of US$ 9.77 06 04 The Expert Panel’s View: The Use Case for the Energy Architecture Performance Index The transition to a new energy paradigm will not be feasible without a suite of strategic tools that help the understanding of different pathways to the future. This is the primary motivation for working with the World Economic Forum to develop an innovative new tool – the Energy Architecture Performance Index (EAPI). The EAPI is a global initiative with the aim of creating a set of indicators that help to highlight the performance of various countries across each facet of their energy systems. In doing so, it attempts to meet two interlinked goals. First, it aims to assess energy systems across their three primary objectives: delivering economic growth, doing so in an environmentally sustainable manner, and ensuring security of supply and access for all. Second, it aims to create a “one-stop shop” for stakeholders where they can easily access transparent and robust datasets and the resulting analysis. The EAPI thus combines an innovative blend of indicators to this end. Of course, the EAPI is highly abstracted and not meant as a comprehensive treatment or classification of an energy system. Rather, it is one way to present and consider the complex information and the highly interdependent issues that prevail in the energy sector. The Expert Panel advising this project brings together senior representatives from various sectors across the energy value chain. The panel is acutely aware of the importance of the provision of quality data in supporting informed decisionmaking. Governments, industry and civil society cannot hope to fully understand the functions and idiosyncrasies of their energy systems without it. Across some metrics, there are excellent data resources available. But data paucity means that several aspects of the global energy system cannot be adequately evaluated. Nevertheless, the EAPI will be a useful tool for policymakers, investors and other stakeholders as they assess energy systems and as they consider the design and implementation of strategies to improve them. The Expert Panel has contributed to and stress-tested the methodology. It has done its utmost to ensure that the team leading the exercise has been rigorous, and that the EAPI is firmly grounded in “reality on the ground”. The product is thus strong and credible, and can be further augmented and refined in subsequent years. The online data platform provides an intuitive user interface that allows for many types of custom research, including “deep-dives” in specific areas of interest. But the finish line remains distant. Next year, the panel will work closely with the Forum team to address some of the critical data sets that are still missing from the EAPI. It will also drive further dialogue with key institutions connected to the energy sector to ensure that the work remains vibrant and continues to evolve. Morgan Bazilian, Deputy Director, Joint Institute for Strategic Energy Analysis, US National Renewable Energy Laboratory, on behalf of the Energy Architecture Performance Index 2013 Expert Panel 6 The Global Energy Architecture Performance Index Report 2013 We are sure that the EAPI will be an invaluable tool for policy-makers and researchers alike. With this tool we hope that policymakers can benchmark their policies with the end objective of achieving a transition to the new energy architecture. Ishwar V. Hegde, Chief Economist, Suzlon Energy The Global Energy Architecture Performance Index Report 2013 7 Executive Summary Over the past century, affordable energy has been a significant driver of global development. Humankind’s continued evolution towards a modern energy system from the adoption of coal-powered energy generation technology in the 1800s through to widespread electrification in the 1900s has helped to shape and develop societies. The world is again in a period of transition for the global energy system. Now more than ever, decision-makers must understand the core objectives of energy architecture – generating economic growth and development in an environmentally sustainable way while providing energy access and security for all – and how they are being impacted by changing dynamics. Responding to these often competing objectives is challenging, as actions to tackle issues such as resource scarcity and climate change must be delivered against the background of difficult economic conditions following the global financial crisis. Difficult trade-offs need to be made, but sometimes complementarities between the imperatives of the energy triangle can be realized. Overall, flux in the system is generating uncertainty for industries and investors. The Energy Architecture Performance Index – A Tool to Assist Decision-makers The Energy Architecture Performance Index (EAPI) is a tool that can help decision-makers manage and monitor this changing landscape, enabling a more effective transition to a new energy architecture. The EAPI measures 16 indicators aggregated into three baskets relating to the three imperatives of the energy triangle to which energy architecture should contribute: economic growth and development, environmental sustainability, and access and security of supply. The EAPI both scores and ranks each country’s current energy architecture based on how well it contributes to these imperatives. The EAPI provides informed, rigorous and actionable support for policy and investment decision-making across the energy sector. Morgan Bazilian, Deputy Director, Joint Institute for Strategic Energy Analysis, US National Renewable Energy Laboratory The assessment has highlighted a number of key trends that are common to the majority of countries analysed: 1. Rich, high GDP per capita countries are more likely to be able to score well against one or more objectives of the energy triangle. Such countries have the economic flexibility to engage in concerted action on environmental sustainability and the adoption of more efficient, cleaner technologies involving legacy infrastructure upgrading across the energy system and incorporation of renewables into the energy mix. 2. Europe dominates the leader board due to concerted regional action on environmental sustainability and better energy efficiency across the value chain. 3. Fast-growing, industrial countries and regions find it harder to perform well on sustainability and security indicators than their richer, more deindustrialized counterparts. With large energy requirements to be met, scoring well across these imperatives of the energy triangle becomes harder with fast-growing, industrialized economies generally relying on cheaper or subsidized fossil fuels, such as coal, petroleum and natural gas, to meet demand. 4. In some regions, much basic work is still to be done to improve performance on the EAPI. The lowest scorers, as might be expected, face challenges around energy access, efficiency and sustainability, and tend to be located in Sub-Saharan Africa, developing countries in Asia or the highly resource-endowed countries of the Middle East. 8 The Global Energy Architecture Performance Index Report 2013 Considerations for managing an effective transition: 1. Improvements in environmental sustainability should be a priority for high-income and rapidly growing economies. For high-income economies – with the highest impact energy sectors – combined performance against this imperative of the energy triangle is far lower than the other two. Progress must be made on this front to meet targets considered and set by experts in the field of pollution mitigation and climate policy. 2. No country achieves top scores against any dimension of the energy triangle. This reflects the EAPI panel’s belief that, although some countries score relatively highly and balance the requirements of the energy triangle well, not one has managed to do all that can be done. This is especially true of the scores in the environmental sustainability basket. 3. A large natural energy resource endowment is not a critical performance factor. Many of the countries under analysis achieve high performance because they have a large provision of exploitable natural resources. However, the prevalence of countries without large endowments in the upper quartile of results indicates the importance of efficiency and sustainability measures, as well as effective access to energy markets. These aspects are largely linked to the vision and efficacy of each country’s energy policy. 4. Managing the trade-offs and complementarities of the energy triangle is critical. The imperatives of the energy triangle may reinforce or act in tension with one another, forcing difficult trade-offs to be made and meaning that, in some cases, decisions have unintended consequences. Sometimes, mutually beneficial complementarities can be realized. In response, decision-makers must ensure that they carefully weigh their choices, creating a portfolio of policies to build an energy mix that best balances the challenges and opportunities presented. 5. Globally, policy-makers need to address some big issues around fossilfuel subsidies, water use for energy production and effective resource wealth management. A concerted global effort is needed to gather more data around the application of fossil-fuel subsidies, water use per type of energy generation and extraction technology (and the impact this has on a country’s overall water resources), and the best models for the development of energy resources. Against each of these energy priorities, a paucity of detailed global data is limiting action. Neither the EAPI nor any index can paint the full picture of a country’s energy situation and priorities without a more detailed view of these factors and their impact on a country’s energy architecture. Table 1: EAPI 2013 Top 10 Performers All scores rounded to two decimal places EAPI 2013 Country/economy Economic growth and development Environmental sustainability Energy access and security Overall rank Overall score Norway 0.67 0.63 0.95 1 0.75 Sweden 0.58 0.76 0.80 2 0.71 France 0.58 0.75 0.78 3 0.70 Switzerland 0.73 0.58 0.79 4 0.70 New Zealand 0.63 0.69 0.77 5 0.70 Colombia 0.76 0.54 0.78 6 0.69 Latvia 0.62 0.74 0.71 7 0.69 Denmark 0.64 0.56 0.82 8 0.67 Spain 0.71 0.55 0.75 9 0.67 United Kingdom 0.59 0.63 0.78 10 0.67 The Global Energy Architecture Performance Index Report 2013 9 1. The New Energy Architecture Challenge – Balancing the Energy Triangle Defining Energy Architecture and the Energy Triangle The World Economic Forum defines energy architecture as the integrated physical system of energy sources, carriers and demand sectors that are shaped by government, industry and civil society. The “energy triangle” – sometimes known as the “energy pyramid” or “energy trilemma” – frames the inherent objectives central to every energy system: the ability to provide a secure, affordable and environmentally sustainable energy supply. The Energy Architecture Performance Index (EAPI) conceptualization of energy architecture can be seen in figure 1. While this is a greatly simplified view, it highlights the complex interactions and systems that will need to be factored into the transition process. Figure 1: Energy architecture conceptual framework The Global Energy Architecture Performance Index Report 2013 11 Energy architecture should promote economic growth and development… …while providing universal energy access and security. Energy architecture underpins economic growth. Given energy’s importance for industrialization and infrastructure building, energy prices strongly correlate with the global business cycle. As an industrial sector, it is often a critical value creator. In 2009, the US energy sector contributed 4% of GDP. In countries that are net energy exporters, the share is even higher: 30% in Nigeria, 35% in Venezuela and 57% in Kuwait.1 Energy is a prerequisite for all sectors of an economy so its cost is critical – price volatility and supply interruptions can destabilize economies. Reliable energy promotes economic and social development by boosting productivity and facilitating income generation, and so it follows that energy availability should affect job availability and national productivity. However, price signals must reflect the true associated costs of energy production to ensure consumption is economically viable and producers remain lean and responsive to an undistorted market. What constitutes “energy security” is much debated. Physical supply of energy is subject to a number of risks and disruptions. Principal concerns relate to the reliability of networks for the transmission and distribution of energy, and vulnerability to interruptions of supply, particularly for countries dependent on a limited range of energy sources. But energy security is also about relations among nations, how they interact with one another, and how energy impacts their overall national security.5 Chatham House research suggests that the Asia-Pacific and European regions may need imports to meet about 80% of their respective oil demand by 2030.6 So the security of supply from trade partners, risks of energy autarky (prompting disintegration of energy markets) and uncertainty over prices creating volatility are critical concerns that must be managed. …in an environmentally sustainable way… The production, transformation and consumption of energy are associated with significant negative environmental externalities. The most critical are global energy-related emissions: energy architecture remains the main contributor to global warming.2 The International Energy Agency’s (IEA) 450 scenario3 suggests that a global warming of more than 3.5°C would have, “severe consequences: a sea level rise of up to 2 metres, causing dislocation of human settlements and changes to rainfall patterns, drought, flood, and heat-wave incidence that would severely affect food production, human disease and mortality.”4 A range of further issues relating to environmental degradation (for instance particulate matter pollution and land-use impact) remain of continuing concern and the energy sector’s reliance on other constrained resources – water and metals to name but two – highlight sustainability as a critical transition priority. Security of supply is immaterial without access to that supply. Universal energy access is a United Nations (UN) Millennium Development Goal.7 According to the UN, the level of access to energy services has “implications in terms of poverty, employment opportunities, education, community development and culture, demographic transition, indoor pollution and health, as well as gender- and agerelated implications.”8 The degree of impact links to economic development; wealthy countries enjoy modern, clean, affordable and efficient energy services (for lighting, heat, cooking uses) almost universally. In low-income economies, energy is responsible for a larger portion of monthly household income, and the use of basic equipment often means fuels such as kerosene and charcoal are burned inside houses, impacting human health and contributing to disease through air pollution. 1 World Economic Forum, Energy Vision Update, 2012. International Energy Agency (IEA), Topic: Climate Change; see www.iea.org/topics/climatechange. 3 450 Scenario is a scenario presented in the World Energy Outlook that sets out an energy pathway consistent with the goal of limiting the global increase in temperature to 2°C by limiting the concentration of greenhouse gases in the atmosphere to around 450 parts per million of CO2 equivalent. 4 International Energy Agency (IEA), World Energy Outlook, 2011, Chapter 6, “Climate Change and the 450 Scenario”. 2 12 5 Yergin, Daniel, The Quest: Energy, Security and the Remaking of the Modern World, 2011. Mitchell, John V., More for Asia: Rebalancing world oil and gas, Chatham House, 2010. 7 UN Secretary-General’s Advisory Group on Energy and Climate Change, Energy for a Sustainable Future, 2010. 8 United Nations Department of Economic and Social Affairs and International Atomic Energy Agency, Energy Indicators for Sustainable Development, 2007. 6 The Global Energy Architecture Performance Index Report 2013 1. The New Energy Architecture Challenge – Balancing the Energy Triangle Over the past century, affordable energy has been a significant component of global economic growth and development. But the past decade alone has seen a series of significant changes impact the global energy system. The Challenges – Charting the Transition Course Achieving the imperatives of the energy triangle has become particularly challenging as security and environmental pressures – including tackling resource scarcity and climate change – must be delivered against the background of difficult economic conditions following the global financial crisis. Due to the economic slowdown, countries are changing legislation and exercising caution around the deployment of new energy projects with large upfront capital costs. Some countries have been reconsidering their renewables obligations and CO2 targets9 while others have been reaffirming them. Consumers, concerned by bills, are less willing to carry the cost of greener technologies as part of their utilities spend. With the recovery of coal and oil prices since 2008,10 a squeeze on OECD industrial production can be felt, with energy costs absorbing an increasing slice of revenue. Figure 2: World energy consumption projections, 1990-2035 Source: US Energy Information Agency data 800 700 600 Quadrillion Btu (qBtu) The Challenges Associated with the Transition to a New Energy Architecture 500 400 300 200 100 0 1990 2000 2008 2015 2020 2025 2030 2035 Non-Organisation for Economic Co-operation and Development countries Organisation for Economic Co-operation and Development countries In this context, governments are trying to reshape their energy systems to meet the objectives of the energy triangle. This process will be enabled by new technologies across the value chain. This is a time of change for the global energy architecture. Figure 3: Advances expected across the energy value chain to help meet transition challenges With global energy demand expected to increase 53% by 2035 (see figure 2) and the People’s Republic of China and India accounting for half of that growth, increased scarcity may herald an era of sustained high prices for traditional energy sources.11 9 Germany has instigated solar tariff cuts, India has removed a fiscal support structure for the wind sector, and Italy has issued more cuts to the preferential rates awarded to renewables projects. Source: Ernst & Young, Renewable energy country attractiveness indices, 2012. 10 The price of the front-month futures contract for Brent crude oil averaged US$ 114.77 in August 2012. Source: US Energy Information Administration (EIA), The Availability and Price of Petroleum and Petroleum Products Produced in Countries other than Iran, August 2012. 11 US Energy Information Administration (EIA), International Energy Outlook, 2011 (no release for 2012); available at www. eia.gov/forecasts/ieo/. The Global Energy Architecture Performance Index Report 2013 13 A Tool for Transition – The Energy Architecture Performance Index The Energy Architecture Performance Index (EAPI) is a tool that will help decision-makers manage and monitor these challenges. By creating more transparency and a basis for assessing overall energy system performance, it can inform decisions to enable a more effective transition to a new energy architecture. It builds on the beta version used in the New Energy Architecture: Enabling an Effective Transition report released in April 2012. The EAPI measures an energy system’s specific contribution to the three imperatives of the energy triangle: economic growth and development, environmental sustainability, and access and security of supply. It comprises 16 indicators aggregated into three baskets relating to these three imperatives. It both scores and ranks the performance of a country’s energy architecture (see figure 4). The EAPI helps stakeholders as they look for performance areas to improve and balance the imperatives of the energy triangle over the long term. By measuring and reporting on a various 14 set of indicators, the EAPI provides a transparent and holistic set of insights into energy architecture successes and challenges, acting as a base from which to make policy and investment decisions and prioritize opportunities for improvement across the energy value chain. Indicators were selected against the following criteria: – Output data only: The measurement of output-oriented observational data (with a specific, definable relationship to the sub-index in question) or a best available proxy, rather than estimates – Reliability: The use of reliable source data from renowned institutions – Reusability: Data sourced from providers that the EAPI team can work with on an annual basis and that can therefore be updated with ease – Quality: The data selected represents the best measure available given constraints; with this in mind, the The Global Energy Architecture Performance Index Report 2013 Expert Panel reviewed all potential datasets for quality and verifiability and those that did not meet these basic quality standards were discarded12 – Completeness: Data is of adequate global and temporal coverage; it has been consistently treated and checked for periodicity to ensure the EAPI’s future sustainability. The EAPI team also wished to include other indicators than those listed in figure 4 but could not due to a lack of compliance with the criteria or, more often, a lack of data availability. In the Methodological Addendum, the team flags to the international energy community the stark gaps found in global energy-related data banks in a bid to raise awareness and take action. A pull-out focused on the water/energy nexus can also be found in the Methodological Addendum as this is an important topic around which later iterations of the EAPI should include data. 12 Please see the “Data Paucity & Country Exclusions” section of the Methodological Addendum for further detail around these criteria. 1. The New Energy Architecture Challenge – Balancing the Energy Triangle Figure 4: Structure of the Energy Architecture Performance Index 201313 13 For a detailed technical description of the methodology, please see the Methodological Addendum at the end of this report. The Global Energy Architecture Performance Index Report 2013 15 2. Understanding Performance on the Energy Architecture Performance Index 2013 The Energy Architecture Performance Index (EAPI) uses a universal set of indicators to assess different countries’ performances. Accepting the very different set of circumstances each country is in, all countries are heading for the same end goal of a high performing and balanced energy system across each aspect of the energy triangle, but each has a unique starting position on that journey. Within this context, certain countries are demonstrating that they can achieve the transition to a new energy architecture more in line with the imperatives of the energy triangle. The analysis in this section studies a selection of EAPI 2013 top performers and the drivers of their high scores and ranks. The EAPI 2013 Rankings Table 2 shows the rankings for each of the separate components of the energy triangle (economic growth and development, environmental sustainability, and energy access and security) and the EAPI 2013 overall ranking. All scores are between 0 and 1. No country achieves top scores against any basket. This reflects the fact that, although some countries score relatively high and balance the requirements of the energy triangle well in comparison to other countries, not one has managed to do all that can be done. This is especially true of the scores in the environmental sustainability basket. Here, country results are often compared with targets or policy directives. For example, particulate matter (PM10) country-level emissions are assessed against compliance with the 20 microgram per cubic metre (µg/m3) annual mean that the World Health Organization stipulates in its air quality guidelines, while the target value of 5.2 l/100 kilometres for average fuel economy for passenger cars represents the European Union objective. This sets a higher threshold for performance in this basket and reflects how much work is still to be done to address the global challenges associated with sustainable energy production and consumption. Table 2: EAPI 2013 rankings Country/ economy Norway Sweden France Switzerland New Zealand Colombia Latvia Denmark Spain United Kingdom Romania Uruguay Ireland Germany Peru Hungary Slovak Republic Portugal Costa Rica Austria Brazil Lithuania Canada Slovenia Japan Croatia Russian Federation Australia Belgium Estonia Chile Finland Greece Israel Paraguay Argentina Poland Korea, Rep. Mexico Singapore Netherlands Azerbaijan Iceland Turkey Thailand Italy Panama Bulgaria El Salvador Tunisia Kazakhstan Dominican Republic Czech Republic Ecuador United States Cyprus Georgia Algeria South Africa Armenia Philippines India Indonesia Morocco Malaysia Libya Bolivia Brunei Darussalam Sri Lanka Tajikistan Botswana Ukraine Egypt, Arab Rep. China, People’s Rep. Trinidad and Tobago Oman Nicaragua Vietnam Namibia Cameroon Senegal Saudi Arabia Kyrgyz Republic Cote d’Ivoire Ghana Jamaica United Arab Emirates Pakistan Nigeria Syrian Arab Republic Jordan Qatar Kenya Haiti Kuwait Iran, Islamic Rep. Zambia Cambodia Bahrain Mongolia Nepal Mozambique Lebanon Tanzania Ethiopia Economic growth and development 0.67 0.58 0.58 0.73 0.63 0.76 0.62 0.64 0.71 0.59 0.65 0.69 0.61 0.60 0.78 0.53 0.48 0.64 0.62 0.61 0.59 0.53 0.61 0.55 0.60 0.66 0.58 0.66 0.51 0.56 0.57 0.53 0.63 0.61 0.60 0.65 0.60 0.59 0.61 0.70 0.50 0.47 0.30 0.51 0.54 0.48 0.60 0.56 0.48 0.43 0.55 0.53 0.50 0.56 0.56 0.57 0.37 0.37 0.60 0.36 0.41 0.54 0.48 0.41 0.30 0.35 0.37 0.40 0.43 0.29 0.48 0.22 0.27 0.34 0.46 0.34 0.37 0.29 0.43 0.40 0.42 0.30 0.20 0.36 0.34 0.32 0.38 0.31 0.36 0.31 0.25 0.35 0.34 0.44 0.35 0.22 0.33 0.37 0.29 0.29 0.31 0.27 0.35 0.30 0.25 Environmental Energy access sustainability and security 0.63 0.76 0.75 0.58 0.69 0.54 0.74 0.56 0.55 0.63 0.63 0.58 0.63 0.58 0.55 0.67 0.69 0.56 0.61 0.52 0.60 0.64 0.47 0.56 0.48 0.47 0.54 0.36 0.55 0.59 0.51 0.47 0.48 0.47 0.66 0.48 0.48 0.43 0.50 0.41 0.50 0.51 0.70 0.53 0.49 0.53 0.54 0.55 0.60 0.54 0.45 0.61 0.40 0.52 0.34 0.51 0.61 0.52 0.49 0.61 0.62 0.59 0.56 0.54 0.48 0.47 0.55 0.35 0.63 0.66 0.57 0.56 0.52 0.53 0.37 0.29 0.60 0.55 0.57 0.66 0.63 0.28 0.58 0.68 0.66 0.50 0.22 0.59 0.70 0.38 0.38 0.15 0.69 0.64 0.16 0.36 0.71 0.64 0.23 0.48 0.69 0.71 0.37 0.72 0.72 0.95 0.80 0.78 0.79 0.77 0.78 0.71 0.82 0.75 0.78 0.73 0.72 0.74 0.79 0.63 0.76 0.78 0.75 0.72 0.79 0.73 0.73 0.82 0.77 0.77 0.71 0.71 0.81 0.77 0.67 0.73 0.81 0.70 0.73 0.54 0.66 0.71 0.76 0.67 0.67 0.77 0.78 0.75 0.70 0.70 0.72 0.58 0.62 0.64 0.73 0.70 0.55 0.78 0.59 0.77 0.57 0.66 0.75 0.54 0.64 0.58 0.47 0.53 0.61 0.77 0.73 0.62 0.79 0.48 0.58 0.45 0.70 0.68 0.60 0.62 0.80 0.45 0.57 0.39 0.33 0.33 0.78 0.58 0.31 0.34 0.52 0.73 0.42 0.25 0.62 0.66 0.78 0.26 0.20 0.76 0.68 0.22 0.22 0.68 0.41 0.18 0.19 0.44 0.11 0.11 EAPI 2013 Overall rank Overall score 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 0.75 0.71 0.70 0.70 0.70 0.69 0.69 0.67 0.67 0.67 0.67 0.67 0.66 0.66 0.65 0.65 0.65 0.65 0.65 0.64 0.64 0.63 0.63 0.63 0.61 0.61 0.61 0.61 0.61 0.61 0.61 0.60 0.60 0.60 0.60 0.60 0.60 0.59 0.59 0.59 0.59 0.59 0.58 0.58 0.58 0.58 0.57 0.57 0.57 0.57 0.57 0.56 0.56 0.56 0.56 0.55 0.55 0.54 0.54 0.54 0.53 0.53 0.52 0.52 0.52 0.52 0.51 0.51 0.51 0.51 0.50 0.49 0.49 0.49 0.48 0.48 0.48 0.47 0.47 0.46 0.46 0.46 0.45 0.45 0.45 0.45 0.44 0.44 0.44 0.44 0.43 0.43 0.43 0.43 0.42 0.42 0.42 0.41 0.40 0.39 0.39 0.39 0.39 0.37 0.36 The Global Energy Architecture Performance Index Report 2013 17 Top Ten – Key Takeaways Figure 5: Map of top performers overall 1st 6th Norway 6 0.75 2nd 0.69 7th Sweden 7 0.71 3rd France 8th 8 9th 9 Switzerland 10th 0.70 2. Having a low-carbon fuel mix is a performance factor. The top ten performers source on average 36% of their total primary energy supply (TPES) from alternative or renewable energy sources, including biomass and nuclear. Sweden, France and Switzerland all source over 26% of their TPES from nuclear (France 42%), with an average nuclear TPES of 12% for the top ten compared to 4% for the EAPI 2013 sample. Large-scale hydro power use also drives performance, with an average hydro TPES of 9% for the top 10, 5% for the rest of the EAPI 2013 sample. Spain 0.67 New Zealand 1. High GDP correlates with high performing energy systems. The top ten EAPI 2013 performers enjoy an average GDP per capita of over US$ 46,000 and all, bar Latvia, are within the top 25 countries globally on this metric. The link between higher GDP and better EAPI performance is also replicated in the overall economic and regional cluster analysis (see section 2. Economic and Regional Clusters Analysis for further detail). Denmark 0.67 0.70 5th Latvia 0.69 0.70 4th Colombia United Kingdom 0.67 3. Other factors also contribute. Top quartile scores for low energy intensity, diverse energy supply and low emissions rates also contribute. The top ten have an average energy intensity score of US$ 9.93 GDP per unit of energy use (2005 PPP US$ per kilogram of oil equivalent), above the EAPI sample average of US$ 7.14. They score an average 0.90 / 1 for diversity of TPES and an average of 0.64 / 1 for environmental sustainability – above the EAPI sample average of 0.54. 4. Two success stories are surprises. Latvia’s affordable energy (no fuel subsidy and marginal taxes) and excellent energy intensity score, and New Zealand’s supply diversity (39% alternative or nuclear sources and 3rd most diverse TPES) boost their performance significantly. 5. Europe dominates the leader board. This is due to concerted regional action on environmental sustainability, better energy efficiency across the value chain and the adoption of clean technologies. Spotlight on 1st Place: Norway Norway owes much of its excellent score to its geological resources – and its efficient management of them. Norway provides much of the oil and gas consumed in Europe and, in 2011, was the 2nd largest exporter of natural gas in the world after the Russian Federation, and the 7th largest exporter of oil.14 This drives GDP: in 2010, crude oil, natural gas and pipeline transport services accounted for almost 50% of Norway’s exports revenues, 21% of GDP, and 26% of government revenues according to the Norwegian Petroleum Directorate. Strong policy has met with resource wealth to see Norway rank 1st in the EAPI 2013. A strong policy vision has had an obvious impact on Norway’s score across the efficiency metrics. The Enova SF programme promotes energy savings, new renewables and natural gas solutions and is owned by the government of Norway. It promotes environmentally sound energy use and production, relying on financial instruments and incentives to stimulate market actors15 to boost the energy 14 US Energy Information Administration (EIA), Norway Country Report, August 2012; available at www.eia.gov/ countries/cab.cfm?fips=NO. 15 Norden, Nordic Council of Ministers, Nordic Energy Solutions; available at www.norden.org. 18 The Global Energy Architecture Performance Index Report 2013 2. Understanding Energy Architecture Performance Index Performance efficiency of Norwegian industry and mitigate its environmental impact. Projects with energy requirements of more than 0.1 gigawatt-hour (GWh) can apply for investment support for efficiency initiatives (i.e. measures for energy recovery or waste heat conversions to renewable energy) from a managed energy fund of over € 874 million. Under the programme, publically funded research, development and deployment (RD&D) for clean energy initiatives has more than tripled from 2007 to 2009 public funding for energy RD&D is now the 3rd highest among IEA member countries.16 Figure 6: Norway’s performance on the EAPI 2013 Economic growth and development Norway 0.67 0.50 0.00 Hydropower delivers clean and cheap electricity to Norway’s consumers. From an environmental sustainability perspective, Norway scores fairly well at 25th overall. Hydropower is the principal source of Norway’s electricity supply at 95%, while only 4% comes from conventional thermal sources, followed by 1% from other renewables, namely biomass and waste and wind according to IEA data.17 Norway hosts two of the world’s five large-scale carbon capture and sequestration (CCS) projects and, according to the IEA, the government is strongly committed to significant support of further CCS technology development. The building code, introduced in 2007, means long-term improvements in energy efficiency in buildings are guaranteed. In the transport sector, Norway has a supportive incentive package to encourage uptake of electric vehicles, including exemptions from toll road charges, parking fees and certain taxes. The government also plans to substantially increase public transport and the use of rail in freight transport.18 However, the slightly lower score compared to the other two sides of the triangle (see figure 6) can be explained by Norway’s carbon-intensive industry base. The oil and gas sector is a heavy CO2 emitter, with refineries representing three-quarters of the country’s emissions according to the EU Emissions Trading Scheme. The energy sector emitted 19.2 million tonnes of carbon dioxide in 201119 and, although Norway sources almost all of its power needs from its hydro plants, the transport sector is a large emitter with relatively poor vehicle efficiency (8.65 l/100 km) compared to the European average. 1.00 0.95 0.63 Energy access and security Environmental sustainability Bard Vegar Solhjell, the Environment Minister, has recently pledged over US$ 8.2 billion to drive industry CO2 cuts to meet the nation’s target of 30% emissions reduction by 2020,20 with the transport, manufacturing and oil and gas sectors likely to have to meet the majority of these. Overall, only 37% of total primary energy supply (TPES) is from alternative and nuclear energy – this sees Norway rank 31st in the overall rankings for this indicator, pulling down this basket’s overall score. That said, industrial energy efficiency is improving ahead of the EU curve, as figure 7 shows. Cost efficiency is also seen as essential in regulating the environmental impact of transport, so duties on petrol and diesel are high, as is the registration tax on vehicles. From an economic growth and development perspective, this reflects as a relatively low score for the level of price distortion for pumped super gasoline and diesel indicators, but these taxes are also used to finance road infrastructure and/ or to reduce traffic in cities, thus reducing air pollution. The Transnova initiative was established in 2009 to encourage more environmentally friendly transport technologies and manages some of these tax revenues. Although Norway’s oil production peaked in 2001 at 3.4 million barrels per day (bbl/d) and declined to 2 million bbl/d in 2011, natural gas production has been steadily increasing since 1993, reaching 3.6 trillion cubic feet (TCF) in 2011. And in terms of its resource management, Norway’s sovereign wealth fund, the Government Pension Fund, exemplifies the correct resource “model” with the International Monetary Fund (IMF) citing it as “an exemplary sovereign wealth fund”.21 This is an important point. The effects of indirect-deindustrialization on resource wealth are well understood (see Pull-out: Accounting for the Resource Curse for further detail). Yet the Government Pension Fund’s obvious contribution to GDP shows a successful “boom minimization structure” at work, stabilizing the powerful revenue stream to reduce the risk of Dutch disease and drive competitiveness through investment in education and infrastructure programmes. 21 20 Norwegian Ministry of the Environment, Roadmap for a Low Carbon Economy – Review, 2011. International Monetary Fund (IMF), “Norway’s Oil Fund Shows the Way for Wealth Funds”, www.imf.org/external/ pubs/ft/survey/so/2008/pol070908a.htm. Figure 7: Norway’s compound annual change in the ODEX* energy efficiency index for industry, 2000-2009 Source: ODYSSEE 2.35% Norway 16 International Energy Agency (IEA), Norway Review, 2011. International Energy Agency (IEA), World Energy Outlook, 2011. 18 International Energy Agency (IEA), Norway Review, 2011. 19 Thomson Reuters Point Carbon, Point Carbon Research; available at www.pointcarbon.com. 17 EU27 1.31% *The Odyssee ODEX is a European energy efficiency index combining Industry, Transport and Household energy efficiency indicators The Global Energy Architecture Performance Index Report 2013 19 Norway’s energy future looks bright In June 2012 the Norwegian government confirmed plans to partner in the construction of a subsea electric power interconnector with the United Kingdom and Germany, due for completion in 2020. The purpose is to strengthen the northern European electricity grid and increase supply security. Measures to promote energy efficiency, given that the electricity supply is already practically carbon-free, means the government should also avoid a possible energy intensity increase. And, as a result of a recent agreement with the Russian Federation, Norway has gained 54,000 square miles (139,859 square kilometres) of continental shelf for the development of oil and gas deposits that cross between the two countries’ economic zones in the Barents Sea and Arctic Ocean.22 With strong policy in place to support the improvement of scores across each of the three elements of the energy triangle, Norway looks likely to continue its strong performance over the near-term. Spotlight on New Zealand and Latvia New Zealand and Latvia break the top quartile GDP per capita/high performance trend, although they are very small in terms of total population23 – together they represent just 3% of the top ten’s combined population. So what are the drivers of their performance? In New Zealand, the adoption of the 2009 electricity market reform, the Resource Management Act, the 2009 Petroleum Action Plan and the Energy Research Roadmap have helped drive energy market and infrastructure improvements.24 Government policy statements on gas governance and land transport funding and a National Policy Statement on Electricity Transmission have encouraged the move towards a liberalized market. And geology has helped: hydroelectric power stations generate the majority of New Zealand’s electricity, with 24,831 gigawatt-hour (GWh) total generated by hydroelectricity in 2011 – equal to 57.6% of total electricity generation.25 This translates to cheap industrial power, a driver of economic growth and development, with prices averaging US$ 0.07 per kilowatt-hour (kWh), ranking New Zealand 14th overall for this indicator. New Zealand enjoys abundant natural resources. Therefore, although New Zealand is currently a net importer of energy (it imports 10.6% of energy when imports are defined as energy use less production ), oil and gas production could be substantially increased – potentially to the point where New Zealand becomes a net exporter of oil by 2030, according to the New Zealand government’s Energy Strategy Document 2012. Latvia’s energy efficiency has largely improved following its devolution from the former Soviet Union – with GDP per unit of energy use (at purchasing power parity, PPP) leaping from a 1990 level of US$ 2.66 per kilogram of oil equivalent (kgoe) to US$ 8.50 per kgoe in 2011, just below the EU27 average of US$ 8.75 per kgoe for 2011. This has been the defining story for Latvia. It is the result of structural reforms to the energy sector and liberalization of the electricity market, as well as separate energy efficiency initiatives focused on improving heat supply systems and reducing consumption in buildings.27 Latvia also scores well due to affordable fuel pricing without subsidy distortion (and marginal tax) on pumped gasoline and diesel, leading to a rank of 4th and 12th respectively on these products’ price indicators. New Zealand and Latvia’s geological advantages drive good environmental sustainability scores. From an environmental sustainability perspective, New Zealand scores very well relative to the other economies assessed. In 2010, approximately 39% of total primary energy supply was from renewable sources. Renewables will likely play a more significant role in the future energy mix. In 2005, geothermal and wind generated 9% of New Zealand electricity, whereas in 2010 the proportion generated from these sources increased to 17%, and overall 74% of electricity was generated from renewable sources. The large share of renewable energy sources makes New Zealand one of the most sustainable countries in terms of energy generation, though electricity demand is also still growing, by an average of 2.1% per year since 1974.28 The government goal is to increase the proportion of renewables to 90% of electricity generation by 2025 (in an average hydrological year), providing this does not affect security of supply.29 In 2008, the government introduced a New Zealand Emissions Trading Scheme (NZ ETS). By 2015, this will cover all sectors and all gases. And given the excellent, though currently underused, wind and 20 (For an in-depth analysis of Latvia’s environmental sustainability score, see the Spotlight on top three performers: Sweden, France and Latvia in section 4. Environmental Sustainability.) Both New Zealand and Latvia have a diverse total primary energy supply. Although New Zealand uses more energy per capita than most OECD countries, it has improved its energy intensity by 21% between 1990 and 2011. The growth of relatively less energy-intensive service industries is a factor. Total consumed energy dropped by 0.2% between 2007 and 2011, although the impact of the financial crisis on energy use must not be overlooked when considering this drop. Oil still dominates New Zealand’s TPES. In 2011 it accounted for 34% of TPES, geothermal energy for 19% and gas for 19%. As a net importer of energy, the predominant slice of which is crude (in 2011 98% of refinery input was from imported crude and feed stocks30), New Zealand needs to manage this trend. The real success story for New Zealand relating to energy access and security is its diversity of supply. With a score of 0.98 on the Herfindahl31 index, New Zealand’s TPES portfolio is almost perfectly balanced, as is reflected in its rank of 3rd for this indicator. Latvia’s supply profile sees a good diversity score (0.89 on the Herfindahl index) and sustainability of the energy mix, averaging a normalized score of 0.62 (out of a possible 1.00) for all specific emissionsrelated indicators.32 However, unlike New Zealand, it does relatively poorly in terms of energy access, with median scores across the quality of electricity supply (4.9 out of 7) and a significant proportion of the population still using solid fuels for cooking (10%), contributing to Latvia’s estimated 235,658 deaths per year due to indoor air pollution, as estimated by the Global Alliance for Clean Cookstoves. With little evidence that these indicators are the subject of any policy initiatives, it may be an area for the Latvian government to consider focusing on in order to improve its EAPI ranking moving forwards. 30 22 US Energy Information Administration (EIA), Norway Country Report, August 2012; available at www.eia.gov/ countries/cab.cfm?fips=NO. 23 World Bank, Databank, Population (Total), 2011. 24 International Energy Agency (IEA), New Zealand Energy Policy, 2010. 25 Government of New Zealand, Energy Data File, 2011. geothermal energy resources available, New Zealand could be a world leader in renewable energy generation very soon. 26 World Bank, Energy imports, net (% of energy use), 2010. 27 Energy Charter Secretariat, In-depth Review of Energy Efficiency policies and Programmes, Latvia, 2007. 28 New Zealand Government, Energy Data File, 2012. 29 International Energy Agency (IEA), New Zealand Energy Policy, p. 7-8. The Global Energy Architecture Performance Index Report 2013 New Zealand Government, Energy Data File, 2012. See section 7. Definitions for a description of the Herfindahl calculation. 32 These include: nitrous oxide emissions in the energy sector (tmte CO2)/total population, CO2 emissions from electricity and heat production (total)/total population, PM10 country level (micrograms per cubic metre). 31 2. Understanding Energy Architecture Performance Index Performance Economic and Regional Clusters Analysis This section considers some of the macro trends from the analysis of the EAPI results and the factors at play for different regions and economic clusters as they look to manage the transition to new energy architectures. Fast-growing, industrial clusters find it harder to perform well on sustainability and security indicators than richer, more deindustrialized counterparts. The need to meet large energy requirements makes it harder for countries to score well across each of the imperatives of the energy triangle. Comparing four economic clusters – the BRIC (Brazil, the Russian Federation, India and the People’s Republic of China), MIST (Mexico, Indonesia, South Korea and Turkey), EU1533 and Nordic economies34 – though with very different requirements of their energy systems, they show similar scores in terms of how their energy systems drive economic growth. The average economic growth and development score for the BRIC countries is 0.51, 0.54 for the Nordic countries and 0.55 for the MIST grouping. The EU15 cluster scores highest with an average score of 0.59. It is worth noting that energy intensity scores were highly dispersed (see figure 8). However, it was the environmental sustainability and energy access and security scores that showed a greater divergence (see figure 9). This aligns with the clusters’ different situations and energy priorities. The BRIC (and to a lesser degree MIST) countries are driving global energy demand. Total primary energy supply among BRIC countries was 1,024 million tonnes of oil equivalent (mtoe) in 2010, up 28% from 2005. Comparatively, the EU15’s TPES was 103 mtoe in 2010, down 4% from 2005. The BRIC economies are generally relying on cheaper or subsidized fossil fuels, such as coal, petroleum and natural gas, to meet demand. In the People’s Republic of China alone, coal-fired electricity generators represented 78% of the 1 billion kilowatts of installed capacity in 2011 and demand for coal will likely exceed 4 billion metric tonnes in 2015 – more than half of the world’s total demand for coal.35 33 The EU15 comprises Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the United Kingdom. This report excludes data for Luxembourg, which should be discounted from the grouping. 34 The Nordic designation encompasses the economies of: Denmark, Finland, Iceland, Norway and Sweden. 35 World Economic Forum and IHS CERA, Energy for Economic Growth Energy Vision Update, 2012. Figure 8: Regional energy intensity scores Source: World Bank EU15 0.67 MIST - Mexico, Indonesia, South Korea and Turkey 0.50 Nordic Countries - Denmark, Finland, Iceland, Norway and Sweden 0.44 BRICs - Brazil, Russia, India and People's Republic of China 0.32 GDP per unit of energy use - EAPI Normalised Score (0 - 1) Figure 9: Energy access and security and environmental sustainability scores Economic growth and development 1.00 Nordic economies EU15 0.50 BRIC economies are growing. GDP levels per capita are not fully realized and are showing growth despite the global economic crisis (BRIC real GDP grew 6.53% in 2011 alone36). Yet the demands that they are putting on the engine rooms of their growth – their energy systems – means these engines are being stressed. BRICs MIST 0.00 36 Energy access and security Environmental sustainability CME Group, BRIC Country Update, July 2012; available at www.cmegroup.com/education/files/ed133-market-insightsbric-2012-8-1.pdf. The Global Energy Architecture Performance Index Report 2013 21 How does GDP correlate with EAPI performance? Figure 10: Regional Clusters – Comparison of 2013 EAPI score by average GDP per capita37 0.80 $45,000 $35,000 Max 0.60 $30,000 EAPI 2013 score UQ $25,000 LQ $20,000 0.40 $15,000 Min $10,000 $5,000 0.20 Average GDP per capita (current US$, 2011) $40,000 Figure 10 is a ‘box’ or ‘spread’ chart Spread charts show the distribution of a dataset in this case the different economic / regional clusters' average Energy Architecture Performance scores The silver bars are the spread of data from minimum, median to the maximum value The blue boxes show the quartiles Quartiles are a set of values that divide the data set into four equal groups, each representing a fourth of the sample The upper quartile represents the split of the highest 25% of data the top performers The lower quartile represents the split of the lowest 25% of data the bottom performers These spreads are charted against average GDP per capita for the cluster $0 Sub-Saharan Africa Middle East and ASEAN and Commonwealth North Africa Developing Asia of Independent States Latin America and the Caribbean Central and Eastern Europe Advanced Economies Economic Cluster Average GDP per capita (current US$, 2011) 37 Linear (Median) See Definitions section for explanation of the graph structure and economic/regional clusters. Figure 10 shows the higher levels of GDP per capita generally indicating a higher spread of scores on the EAPI 2013 globally. How might this be the case? And what would explain the exception to this rule – the Middle East and North Africa’s performance – and the less than stellar performance of the Advanced Economies, given their proportionally higher GDP per capita? Simply framed, rich countries are more likely to be able to score well against one or more objectives of the energy triangle. They have the economic flexibility and clout to engage in concerted action on environmental sustainability and the adoption of more efficient, cleaner technologies involving legacy infrastructure upgrading across the energy system and the incorporation of renewables into the energy mix. With diversified or large service-based economies and a deindustrialized GDP base, energy efficiency is easier to achieve. Figure 11 shows average energy intensity for a selection of regional/economic clusters against the World Bank’s Energy Price Index. Developing, largely industrial economies all show lower performance on an aggregate level than developed, largely diversified economies. Unsurprisingly, the energy intensity scores dip or flat-line with the tumultuous first years of the global financial crisis between 2008 and 2010 as cheaper energy flooded world markets in the wake of the slowdown, and this effect is most noticeable in the intensity scores of the relatively more deindustrialized economies. Figure 11: Energy intensity performance Source: World Economic Forum analysis, World Bank, World Bank Commodity Price Data. For more information about country cluster definitions, please see the Definitions section. 22 The Global Energy Architecture Performance Index Report 2013 2. Understanding Energy Architecture Performance Index Performance Performance at the top end, among the Advanced Economies, is lower than might be expected proportional to the level of GDP per capita. The average rank for Advanced Economies is 25th, and the average score 0.63 / 1, but a few economies score particularly badly on certain indicators, drawing down the cluster’s performance overall. The US, which ranks 55th overall, is an example of an Advanced Economy that faces some key energy architecture challenges, most specifically around emissions intensity. Globally, the US accounts for about 18% of fossil fuel combustion-related emissions. By OECD standards, the US reliance on fossil fuels is relatively high at approximately 85% of TPES, according to IEA data. These fossil fuels are combusted to generate energy and contribute to the increase in CO2 emissions over the decade from 1990 to 2010 (see figure 12). If Cyprus (56th), Czech Republic (53rd) and Italy (46th) the lowest ranked of the Advanced Economy cluster – were also to improve their environmental sustainability scores, the group would likely see large improvement in EAPI scores overall – the four countries average just 0.44 / 1 on environmental sustainability as opposed to 0.56 / 1 for all other Advanced Economies. The Middle East and North Africa’s performance bucks the trend toward higher GDP levels and higher EAPI performance. From a production point of view, resource wealth in this area has translated into enormous sovereign wealth for many of the (mainly) Middle Eastern economies, but these countries’ energy systems often struggle to maximize performance against all three objectives of the triangle. From a consumption perspective, fossil fuel products are heavily subsidized, creating economic drag; a glut of energy availability has discouraged the adoption of efficiency measures impacting on both economic and sustainability metrics; economies have been (historically) Figure 12: Comparison of US greenhouse gas emissions 1990 - 2010 Source: United States Environmental Protection Agency; World Economic Forum analysis 6,000 42 224 340 28 219 338 5,000 Million metric tonnes CO2 Geology also plays a part in performance; in the case of many of the Advanced Economies, natural resources such as hydro, geothermal and oil and gas resources are blended into their energy systems and economies to enable strong performance across each aspect of the energy triangle. A strong degree of development often indicates a successful management strategy for the distribution of resource revenue within an economy, and the establishment of suitable security measures to maintain low reliance on imports and strong, transparent trade networks. 4,000 846 3,000 1,486 778 1,746 2,000 2,258 1,821 1,000 0 Other 362 319 1990 2010 Electricity generation Transportation undiversified38 and susceptible to oil price volatility; and access rates and quality of energy supply are below the leader board’s standards as grids have sagged under pressure to cater to soaring demand.39 A comfortable degree of energy security has been achieved by taking advantage of domestic resources as generation feedstock, but even this success has been vulnerable to the dangerous combination of sharply increasing demand from both supply partners and consumers. In some regions, there’s much work still to do… The lowest scorers, as might be expected, face challenges around energy access, efficiency and sustainability, and tend to be located in Sub-Saharan Africa, developing Asia or the highly resource-endowed countries of the Middle East. The small, resource-strapped economies of Sub-Saharan Africa exhibit low electrification rates and patchy electricity supplies. They often have limited fuel source diversity (in the case of the bottom ten performers, oil – which is 38 Growth has been below potential in the Middle East and North Africa (and not labour absorbing) because of the lack of economic diversification, low private investment (averaging 15% of GDP relative to over double this level in East Asia) in the wake of barriers to entry and an incentive framework that promotes privileges rather than competition. These countries have undertaken a range of economic reforms over the past years, but the quality of implementation of reforms has been low. Source: World Bank, MENA: Emerging Developments and Challenges, 2011. 39 Up to 2020, electricity demand will rise by 7% to 8% per year on average in Gulf Cooperation Council member countries. Source: Economist Intelligence Unit, The GCC in 2020: Resources for the future, 2010. Industrial Residential Commercial US territories mainly imported – and biomass are the primary components of TPES). The high sustainability scores (in relation to their economic growth and energy access and security scores) that these countries sometimes exhibit an overwhelming dependence on biomass energy consisting of wood, charcoal and agricultural residues. This ranking therefore needs to account for the high-poverty contexts of many of these countries. Many resource-rich Middle Eastern fuel exporters score poorly due to high energy intensity and a low-diversity fuel mix. With a dominance of hydrocarbons in the energy supply and the attendant negative environmental impact, these countries also score poorly against environmental sustainability metrics, especially CO2 and nitrogen oxide (NOx) emissions relating to energy. This plays out the message inherent in the structure of the index – inefficient, intensive energy use is problematic for a secure and sustainable energy supply, regardless of the resource endowment enjoyed by a country. The bottom ten performers average a score of 0.39 out of a possible 1 overall, compared to the top ten, which enjoy an average score of 0.70 per country, and the mid-range performers, which average 0.55. The Global Energy Architecture Performance Index Report 2013 23 3. Economic Growth and Development The relationship between energy and economic growth has always been close. Since the industrial revolution, and even before, fossil and other sources of energy have been the engines of economic growth, replacing physical labour and changing the shape of the world’s work forces and work patterns. Increasing efficiency has kept fuel prices low during the 20th century, even as efficiency gains have driven growth. Can these efficiency gains continue in the future? Here, economic growth and development can be broken down across three core components: 1. How affordable the energy provided is – taking into account price distortions as the result of subsidy and tax 2. How efficiently it is used 3. Whether the provision of this energy adds to or detracts from a country’s accounts. Top Ten Economic Growth and Development Performers – Key Takeaways Figure 13: Map of top economic growth and development performers 1st 6th Peru 0.78 2nd 0.70 7th Colombia 0.65 0.76 3rd Switzerland 1 Australia 0.66 0.66 9th Spain 0.71 5th Norway 0.67 8th 0.73 4th Uruguay Croatia 0.70 10th Singapore 0.70 Romania 0.69 1 – Energy intensity for the top ten performers is, on average, far lower than the Energy Architecture Performance Index (EAPI) sample, with an average GDP per unit of energy use of US$ 11.37 compared with the full EAPI sample average of US$ 7.14. – Cheap electricity for industry is a driver of top ten performance, with a US $0.09 US / kWh average for the top ten, compared with a US$ 0.11 US / kWh average for the full EAPI sample (the EAPI indicator represents available data that cannot take into account the potential subsidizing of this price). – All of the top performers have a clearly defined energy efficiency programme or policy measures in place, with examples in Uruguay, Romania and Croatia receiving funding from external parties such as the World Bank. – Generally, pump gasoline and diesel prices reflect the cost of production more accurately, with a 0.86 / 1 average score for (lack of) gasoline and diesel price distortion across the top ten compared with 0.67 / 1 across the full EAPI sample. – Excluding Singapore, fuel imports represent an average of 0.03% of GDP for the top ten, below the EAPI sample average of 0.10%; when including Singapore in the analysis, the figure raises to 0.07%. The inclusion of Singapore in the result may be misleading, however, owing to its status as one of the world’s top three oil trading hubs (with approximately US$ 500 billion in trade channelled through Singapore annually) and the world’s biggest shipping fuel industry, with 26 million tonnes of bunker (fuel to refuel a ship) delivered last year.40 40 Singapore Economic Development Board/Reuters, Factbox: Singapore, 2012; available at uk.reuters. com/article/2007/06/12/singapore-economy-oilidUKSIN19966120070612. The Global Energy Architecture Performance Index Report 2013 25 Spotlight on the Top Three Performers: Peru, Colombia and Switzerland Peru, Colombia and Switzerland head up the table for economic growth and development, with an average EAPI score of 0.76 against a global average of 0.45. Peru and Colombia have reformed energy markets and taken advantage of natural resource endowments to drive economic growth and development. Peru’s results speak for themselves. It is one of the best performing Latin American economies, with an average GDP growth rate of 6.5% between 2002 and 2011, contributing to an excellent energy intensity score (1st in the EAPI this year) that is also the result of various campaigns promoting energy efficiency.41 The past 5 years have seen much progress on many fiscal fronts, with high growth rates coupled with low inflation. From a market structure perspective, a distinct move towards “trade openness, exchange rate flexibility, financial liberalization, higher reliance on market signals and prudent monetary policy, including strong build-up of reserves” has been the strong suit of a series of reforms that have seen income per capita rise over 50% over the past decade.42 The wider country trend for fiscal reform has been reflected in the energy sector; laws such as the Ley de Concensiones Electricas (electrical concessions act) have seen the generation, transmission and distribution divisions of generators split and have opened the door for private companies to own these operations, increasing competition and efficiency. Overall exports averaged US$ 28.8 billion US between 2007 and 2009, a five-fold increase over a single decade, with the rising production of natural gas liquids contributing significantly to this revenue. Electricity comes from the abundant natural gas (52%) and hydropower resources (48%) enjoyed by the country, and which contribute to the low cost of electricity (just US$ 0.079 US / kWh according to IEA data). According to the US Energy Information Administration (EIA), Peru is seeing increased production of both natural gas and petroleum, with new reserves (Peru has added 50 million barrels of reserves in each of the past two years) generating a stream of investments from international oil companies. New policies have been focused on attracting foreign direct investment towards the development of these resources for both export and domestic customers. Colombia’s story is very similar. An improved regulatory framework and security situation has boosted investment in the country by international business and international oil companies. Markdowns to the royalties that the government requires from smaller (less than 125,000 barrels per day) hydrocarbon discoveries have encouraged this process. Hydropower provides for almost all of Colombia’s electricity needs (more than 70% according to IEA data) and so it is able to export many of the energy commodities that it produces.43 The future is bright too; according to the EIA, production is expected to reach 1 million barrels per day by the end of 2012 and 1.5 million barrels per day by 2020.44 Colombia’s liberalized market and resource-rich geology means the energy sector provides a strong revenue stream for the country. Switzerland’s excellent energy intensity score (3rd overall) is partially a result of the predominance of hydro in the electricity generation mix, as well as the lower reliance on industrial output to drive GDP. Several targets have been implemented to reduce the consumption of fossil fuels by 10% before 2020 compared with 2010 levels and to cap electricity consumption growth at 5% over the same period. These include: energy labels for household appliances and lamps; building codes (MINERGIE label); voluntary efficiency agreements with industry; and a tax fund, which deducts up to US$ 0.83 cents per kWh (US$ 1.25 cents per kWh as from 2013), to finance further energy efficiency projects. The government has also funded a district heating scheme worth US$ 28 million as part of a strategy to replace electric heating systems. And although it is dependent on fossil fuels for 52% of total primary energy supply according to the IEA, Switzerland’s good overall score can be further explained by its small expenditure on fuel imports (just 2% of GDP), cheap electricity for industry (hydro generates 70.9% of total installed energy capacity) and low CO2 emissions.46 Lacking the resource wealth of Peru and Colombia, Switzerland represents a different model of success to that of its Latin American counterparts. The SwissEnergy programme has been running for more than 30 years under various incarnations and is solely focused on projects relating to energy efficiency and the development of renewable energy sources. It has pursued a successful strategy. According to an Energici report, Switzerland had a total installed renewable capacity (biomass + geothermal + hydroelectricity + solar + wind) of 14,189 megawatts in 2011, an increase of 158 megawatts (or 1.13%) on 2010,45 putting the Swiss renewable energy market at 17th globally for total installed renewable capacity. 41 A US$ 25 million loan from the Inter-American Development Bank to Peru was authorized in 2010 to: study the potential for mitigating emissions; make an assessment of hydropower infrastructure vulnerability to climate change risks; develop a Strategic Environmental Assessment; boost environmental standards through regulations training and support for municipal eco-efficiency plans; issue guidelines on minimum standards and energy efficiency labelling; and help set up an energy efficiency agency. According to the Asia Pacific Energy Research Centre, Peru has developed 42 appliance standards since 1996, with 29 of them referring to energy efficiency. 42 World Bank, Peru: Country Overview, September 2012; available at www.worldbank.org/en/country/peru/overview. 26 43 Although Colombia consumed 298,000 barrels of oil per day in 2011, it currently produces over 951,000 barrels per day and can export most of its oil. It can also export most of its coal – Colombia was the 4th largest coal producer in the world in 2010. Source: US Energy Information Administration, Colombia Country Analysis, 2012. 44 US Energy Information Administration, Colombia Country Analysis, 2012. 45 Energici, Switzerland Renewable Energy – Annual, 2011; available at www.energici.com/energy-profiles/by-country/ europe-m-z/switzerland. The Global Energy Architecture Performance Index Report 2013 46 Emissions per unit of GDP decreased twice as fast as the total energy intensity over the period 1990 to 2009 (1.2% per year) thanks to substitutions of oil with gas and biomass. This switch out explains around 70% of the reduction in the CO2 intensity since 2000. Source: Sachs, J. D. and A.M. Warner, Centre for International Development and Harvard Institute for International Development, Natural resource abundance and economic growth, 1997. 3. Economic Growth and Development Pull-out: Accounting for the Resource Curse Figure 14: Oil- and gas-related sovereign wealth funds Source: Sovereign ealth Fund Institute. October 2012 United Arab Emirates Abu Dhabi 740.5 Norway 656.2 Saudi Arabia 538.1 Kuwait 296 Russia 149.7 Qatar United Arab Emirates 115 Dubai 70 Libya 65 Kazakhstan 61.8 Algeria 56.7 0 100 200 300 400 500 600 700 800 Billion US$ The expert panel and World Economic Forum team frequently debated the inclusion of a fuel exports (% GDP) indicator. The effects of indirectdeindustrialization, or the “resource curse”, are well understood. Many studies have reported on the inverse correlation between resource abundance and the economic development of a country.47 The symptoms include a decline in national 47 Sachs, J. D. and A.M. Warner, Centre for International Development and Harvard Institute for International Development, Natural resource abundance and economic growth, 1997. manufacturing sector productivity due to the currency-strengthening effect of natural resource exploitation. What might be the impact of the “resource curse” on the various economies assessed by the EAPI? Brazil must carefully manage its revenues from hydrocarbon production. crude oil produced daily48 have been used to help millions of Brazilians out of poverty and drive down the country’s net debt to 37.2% of GDP from a high of 60.4%.49 But in a world of weak European and US currencies, the historical boom and bust pattern of Brazil’s economy may be hard to avoid. How concerned should Brazil be? 48 Taking Brazil as an example, the case is complex. The benefits of the exploitation of its hydrocarbon reserves are undeniable. Revenues from the 2.6 million barrels of US Energy Information Administration, Brazil Country Analysis, February 2012. Bristow, Matthew and Juan Pablo Spinetto, “Brazil Faces New Oil Boom Curse as the World’s Resource Engine”, Bloomberg, 13 March 2012; available at www.bloomberg. com/news/2012-03-13/brazil-faces-new-oil-boom-curse-asthe-world-s-resource-engine.html. 49 The Global Energy Architecture Performance Index Report 2013 27 The answer might be “vigilant”. Brazil’s economy is well-positioned to avoid the long-term pitfalls that might follow large resource discoveries. From a wider economic perspective, the relatively stable currency, low inflation, positive trade balances and a growing service sector coupled with a reduction of the number of people employed in agriculture can be seen as signals of a developing economy that is well-positioned to counterbalance the potentially destabilizing injection of resource revenue into the economy.50 The government’s legislation in this area should prove effective too; oil-field operators often use domestic technology and must use local content for up to 65% of the goods and services required. They also attract a vast amount of FDI in terms of the R&D spend stipulated. Therefore, Brazil is not just an exporter, but is growing as a talent and technology hub. Norway offers a best practice example of how to manage resource wealth effectively. Norway’s Government Pension Fund (established by the Norwegian government to manage resource revenues) is valued at over US$ 600 billion. Through the fund, Norway is actively avoiding a situation in which oil money is poured into the Norwegian economy, resulting in overheating and inflation.51 Instead, the focus has remained on the development of oil and gas sub-sectors like platform construction (which has had a positive spill-over effect into other engineering and information and communications technologies industries) and considered investment initiatives in rural regions with no access to the revenues accrued by the extraction industry.52 50 Imperial College London Business School, Can Dutch disease harm the export performance of Brazilian Industry?, 2010. 51 Royal Norwegian Embassy / Thor Englund; available at www.norway.org/ARCHIVE/business/businessnews/ethicoil. 52 World Economic Forum and IHS CERA, Energy for Economic Growth Energy Vision Update, 2012. 28 Given the EAPI’s strict focus on country energy architecture and, within this basket, the contribution of energy to GDP, it was felt that on an overall global basis, revenues from fossil fuel endowments contributed positively to country GDP, especially when successful boom minimization structures (e.g. investment into sovereign wealth funds, stabilizing the powerful revenue stream) were used to reduce the risk of indirect-deindustrialization and drive competitiveness through investment in education and infrastructure programmes. This is a point of view reflected in recent studies into resource curse theory.53 An obvious caveat would be that this is true if the economy remains diversified and productive in other areas of its operation, not restructuring solely to exploit natural resources. Due to the lack of data around the dispersal of fuel export related revenues for the majority of countries in scope, the EAPI has had to assume a positive net outcome from the fuel export process. 53 In “Does Oil Abundance Harm Growth?”, Applied Economics Letters, 2011, Cavalcanti et al challenge whether natural resource abundance is a curse, citing analysis that shows oil abundance having a positive effect on both longrun income levels and short-run economic growth, as well as social and human capital. The Global Energy Architecture Performance Index Report 2013 3. Economic Growth and Development Pull-out: The Case for Reform of Fossil-Fuel Subsidies Any analysis of the economics of global energy architecture must consider subsidies, which affect prices, public sector budgets and the signals to energy consumers. The EAPI’s take on the issue is upfront: fossil fuels subsidies are detrimental to every angle of the energy triangle. But this position needs justification. Consider the trajectory of the World Bank’s global energy index (see figure 15). Figure 15 shows energy prices growing at an exponential rate. Should continuous upward pressure persist, many developing countries will reach an untenable situation as many of them commit upwards of 5% of their GDP to fossil energy subsidies (an aggregate total of between US$ 300 billion to US$ 550 billion depending on current oil prices).54 The IEA’s 2011 World Energy Outlook report estimates a potential reduction in global energy demand of 4.8% or some 900 million tonnes of oil equivalent by 2035 from the removal of all supply-side subsidies that are targeted 54 McKinsey Global Institute, Resource Revolution: Meeting the world’s energy, materials, food, and water needs, November 2011. at reducing consumer prices for fossil fuels and electricity generated from fossil fuels.55 This is a staggering potential saving. The declaration of the G20 Cannes Summit in 2011 reaffirmed commitments to “rationalise and phase-out over the medium term inefficient fossil-fuel subsidies that encourage wasteful consumption, while providing targeted support for the poorest,”56 demonstrating that there is a recognized political will to end fossil-fuel subsidies on a global basis. 55 International Energy Agency (IEA), World Energy Outlook, 2011. 56 G20 Declaration; available at www.g20-g8.com/g8-g20/ g20/english/for-the-press/news-releases/cannes-summitfinal-declaration.1557.html. Figure 15: World Bank Energy Price Index, 1960 to present World Bank Energy Price Index (2005 = 100) 180 "Super-cycle" of developing world growth 160 140 120 100 Recession 1970s oil shock 80 60 40 20 0 1960 1970 1980 1990 2000 2010 The Global Energy Architecture Performance Index Report 2013 29 Why aren’t subsidies working? Table 3: Estimated energy subsidies, 2007-2010 (US$ billion, nominal) Fossil-fuel subsidies have a wide array of proponents. Frequently, improving social equity, boosting employment and ensuring energy security are advocated as reasons for fossil-fuel subsidies. But this type of subsidy often has an array of damaging side effects. Fossil-fuel subsidies divert investment from other potentially more needful government departments. They reduce fuel consumption efficiency by industry and domestic consumers and encourage rent-seeking by limiting the capital flow available to new energy infrastructure projects. Subsidies are difficult to target accurately. According to Fatih Birol, Chief Economist of the International Energy Agency, fossil fuel “subsidies mainly benefit middle-income and higher-earning urban types; the rural poor use little fossil fuel.”57 In 2010, only 8% of the US$ 409 billion spent on fossil-fuel subsidies was distributed to the poorest 20% of the population.58 The level of energy infrastructure is also a critical factor affecting the distribution of fuel subsidies. For instance, subsidies are more likely to reach poor households in the People’s Republic of China, where the electrification rate is 99%, than poor consumers in India, where the electrification rate is 66%. Source: Source: International Energy Agency, World Energy Outlook, 2011 Fossil-fuel subsidies also have an environmental cost - clean energy investments suffer as a result of cheaper fossil fuels and CO2 emissions are also exacerbated. According to the IEA’s 2011 World Energy Outlook, global spending on fossil subsidies, defined by the IEA as initiatives that directly lower the cost of consuming or producing oil, natural gas or coal, totalled US$ 409 billion in 2010, with the figure expected to grow to US$ 630 billion in 2012. Comparatively, renewable energy subsidies totalled approximately US$ 66 billion in 2010. Even clean energy subsidies (most frequently applied via tax reductions and feed-in tariffs, as with Germany’s solar industry) have come under fire for their high costs in regions where the price of renewable energy sources is far behind grid parity. 57 The Economist, “Fossilised policy”, October 2009. International Energy Agency (IEA), World Energy Outlook, 2011. 58 30 Estimated energy subsidies 2007 2008 2009 2010 Fossil fuels (consumption), of which 342 554 300 409 Oil 186 285 122 193 Gas 74 135 85 91 Coal 0 4 5 3 122 Electricity* 81 130 88 Renewable energy, of which 39 44 60 66 Biofuels 13 18 21 22 Electricity 26 26 39 44 *Fossil-fuel consumption subsidies designated as electricity factor out the component of electricity subsidies attributable to nuclear and renewable energy – they reflect the under-pricing of electricity generated by the combustion of fossil fuels What is preventing the removal of fossil-fuel subsidies? The energy industry offers some major opportunities for fossil-fuel subsidy reform, but the lobbying sector on behalf of subsidies is often powerful and public opposition to rapid phase out can be strong. Since 2007, about 80% of fossil fuel consumption subsidies have been in net oil and gas exporting countries.59 Many producers propose that a subsidy be seen as an opportunity cost for the supply of energy below international prices. The Russian Federation spends US$ 17 billion on natural gas subsidies while Iran, a producer of both oil and gas, subsidizes both fuels, spending US$ 66 billion in total plus an additional US$ 14.4 billion on electricity consumption subsidies.60 Industry and consumers enjoy the resultant cheaper fuel prices. Many countries also support fossil energy production in an indirect fashion. For instance, energy is taxed at a relatively low level in the United 59 International Energy Agency (IEA), “Fossil-fuel consumption subsidy rates as a proportion of the full cost of supply”, World Energy Outlook, 2011; available at www.iea.org/subsidy/ index.html. 60 International Energy Agency (IEA), World Energy Outlook, 2011 The Global Energy Architecture Performance Index Report 2013 States. According to the OECD, there are federal tax breaks available for some types of offshore oil and gas production.61 Tax breaks can help refiners benefit from a rebate of up to 50% on the cost of capital equipment62 and a shortened depreciation period for natural gas distribution pipelines from 20 years to 15 years. There are also social ramifications associated with subsidy removal. Subsidy cuts are often blinkered and neglect some realities of infrastructural and institutional deficiencies in the countries in which they are enforced.63 When the fuel subsidy in Nigeria was removed overnight in early 2012, many businesses, already impaired by the relatively high cost of power supply, become even less competitive, leading to social unrest and nationwide strikes headed up by labour and trade unions. Of course a more nuanced and gradual programme to remove subsidies may make sound, practical sense. Nigeria is 61 Organisation for Economic Co-operation and Development, Inventory of estimated budgetary support and tax expenditures for fossil fuels, 2011; available at www.oecd. org/site/tadffss/48805150.pdf. 62 US Department of Energy, Energy Policy Act (EPAct), 2005. 63 Bazilian, Morgan and Ijeoma Onyeji, Fossil fuel subsidy removal and inadequate public power supply: Implications for businesses, 2012. 3. Economic Growth and Development currently an oil exporter that reimports refined crude products, generating value and employment externally, while shouldering the burden of the cost of its fossil-fuel subsidy. With spend on subsidy approximately at 30% of total federal government expenditure and 4% of national income, this is an economically inefficient situation. How distortion is measured The EAPI uses a “price gap” approach to measure the impact of distortions such as subsidy and tax on fuel prices, a method with clear strengths and weaknesses. Using Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ, the German agency for international cooperation) data, the EAPI evaluates the positive or negative difference between a country’s domestic energy price and the delivered price of crude imported or exported, which can be translated into the cost of supply by an efficient market. This allows for the estimation of price distortions with relatively little data – a useful facet for a multi-country index. However, it means the analysis is sensitive to assumptions regarding what an efficient market price is at any given time and misses the full picture of support and taxation mechanisms. And the approach cannot account for non-cash transfers that do not directly affect prices; for example, an inefficient producer may still charge at import parity, but be subsidized regardless. Again, the EAPI cannot tell the full story without a more detailed data set. Action is required Subsidies are failing their moral obligation. The majority of the world’s high income households have electricity, and the world’s poorest, mostly rural households do not.64 Subsidies are also harming the wider economies of many different countries. As the World Bank highlights, India’s 25% fuel subsidy for liquefied petroleum gas (LPG) for cooking has survived only by importing LPG to meet consumer demand. To keep the subsidies under control, “India has limited imports of LPG and limited retailers to distributing LPG in urban areas.”65 On a global basis, the removal of fossil-fuel subsidies could save the US$ 400 billion66 currently spent on the subsidies annually. 64 Of the US$ 409 billion total in consumption subsidies in 2010, only US$ 35 billion, or just 8%, reached the poorest 20% of income groups. A survey of 11 developing economies comprising 3.4 billion people found that only 2% to 11% of the poorest populations were actually benefitting from fossilfuel subsidies. Source: International Energy Agency (IEA), World Energy Outlook, 2011. 65 World Bank, Energy Services for the World’s Poor, 2000. 66 International Energy Agency (IEA), World Energy Outlook, 2011. The Global Energy Architecture Performance Index Report 2013 31 4. Environmental Sustainability From an EAPI perspective, environmental sustainability is of equal importance to both of the other imperatives of the energy triangle. The EAPI measures how countries’ energy systems impact the environment across two main areas: 1. Greenhouse gas and particulate matter emissions from energy generation activities 2. The ratio of low-carbon energy sources in the fuel mix. For high-income non-OECD and high-income OECD economies – with the highest impact energy sectors performance against this imperative is significantly lower than the other two. This low performance is a function of three factors: 1. The economic cost of building a truly sustainable energy system 2. The high performance targets (based predominantly on existing legislation or official recommendations) used to assess performance 3. The fact that environmental sustainability was not a priority component of the energy discourse until recently, meaning countries are naturally further behind on environmental sustainability metrics than against the other aspects of the triangle (which have been the historic concern of global energy systems). This chapter explores the top performers and some of the key issues relating to environmental sustainability for the energy sector. Top Ten Environmental Sustainability Performers – Key Takeaways Figure 16: Map of top environmental sustainability performers 1st 6th Sweden 0.76 2nd 0.71 7th France 0.75 3rd 8th Latvia Ethiopia Iceland 0.70 10th Tanzania 0.72 – On average 72% of the top ten countries’ total primary energy supply comes from alternative energy sources including nuclear and biomass. This compares to the EAPI 2013 sample average of 29%. Biomass considerations67 in this indicator mean countries sometimes have an overwhelming dependence on biomass energy consisting of wood, charcoal and agricultural residues. This ranking therefore needs to account for the poor contexts of many of the top-scoring countries. Nigeria 0.70 9th 0.72 5th Zambia 0.71 0.74 4th Mozambique Slovak Rep. 0.69 – Energy-related emissions are generally lower and average out at 0.58 metric tonnes of CO2 per capita, against an EAPI 2013 sample average of 2.89 metric tonnes of CO2 per capita. Particulate matter (PM10) emissions average at 22.8 micrograms per cubic metre, against an EAPI 2013 sample average of 37.7 micrograms per cubic metre. – The average fuel economy for passenger cars is slightly lower than the EAPI 2013 sample average at 8.2 litres/100 kilometres for the top ten compared with an overall average of 9.46 litres/100 kilometres. To put this in perspective, the Middle East North Africa region averages 13.69 litres/100 kilometres while European countries average at 7.18 litres/100 kilometres – some of the developing countries in the top ten still have work to do around the adoption of fuel economy measures that European countries have pioneered. 67 Biomass here aligns with the IEA definition to include: biogases, liquid biofuels, industrial waste, municipal waste, primary solid biofuels and charcoal. Source: International Energy Agency website at www.iea.org/stats/defs/sources/ renew.asp. The Global Energy Architecture Performance Index Report 2013 33 Spotlight on Top Three Performers: Sweden, France and Latvia Some geological advantages allow Sweden to exploit hydro resources. Both Sweden and France use a large component of nuclear in their total primary energy supply (TPES) with low carbon impact, driving performance in this section. Low PM10 and CO2 emissions are also key performance factors for the top three. Sweden is the EU’s great success story for clean energy production. In 1970, oil accounted for over 75% of Swedish TPES; then followed the oil shocks of that decade, forcing a rebalancing of the energy mix. Now the figure is 27%, mainly attributable to the use of residential heating oil. A further 65% of TPES comes from alternative or nuclear energy sources (the highest in the EU according to IEA data). Sweden generates 43% of electricity from hydropower and 39% from nuclear, meaning carbon emissions from the electricity and heat sector are the third lowest in the EU, when broken down by population. With most of today’s energy demands easily met domestically, Sweden has been able to pursue a strong series of sustainable energy policy objectives. The Oil Free Society initiative and a green energy certification programme, where producers are granted one electricity certificate for every megawatt-hour (MWh) of renewable electricity generated (and often obliged to buy them in proportion to their supply or consumption profile) coupled with a carbon taxation system implemented in 1991,68 means Sweden has made significant progress around its CO2 and PM10 emissions, driving high scores across these emissions indicators. France is low carbon, low intensity Due to its nuclear provision, France’s CO2 intensity is one of the lowest in the developed world, just behind Iceland and Sweden, with a score of just 1.4 kilograms per kilogram of oil equivalent energy used. Of the 51% alternative energy that France uses for its TPES, 42% is attributable to nuclear, according to the International Energy Agency. The nuclear sector generates a nuclear capacity of 63 gigawatts (GW)69 using 58 reactors, and France is a large user and exporter of low-carbon electricity, with exports heading mainly to Italy and Switzerland. France is also using its nuclear experience to pioneer new reactor designs and is at the cuttingedge of nuclear fuel recycling programmes, with reprocessed fuel generating about 10% of the country’s electricity per year while saving up to 25% of the uranium content of used fuel.70 68 Widegren, Karin, Renewable Energy Support in Europe: The Swedish Experience, Energy Markets Inspectorate, 2011. Nuclear Energy Agency, Country Profile: France, 2010. 70 Areva Group, company website: http://www.areva.com/. 69 34 France has framed up a series of policies71 to support its plan to see a 75% reduction in CO2 emissions by 2050 and a reduction in greenhouse gas emissions in the transport sector to 1990 levels by 2020. France already has an average passenger vehicle fuel efficiency of 7.36 litres/100 kilometres, ranking it 20th overall and in line with the European trend. France may yet take advantage of the low-carbon electrical generation mix by enlarging its electrically powered transportation sector (including the TGV high speed train network). The relatively large solar PV capacity (1.7 GW72) should grow over the short-term as France’s current government has advocated support for the technology approving more than 200 large solar projects totalling 541 MW in July, shortly after it took office. In Latvia, renewable energy initiatives are well incorporated into national climate change policy. Latvia’s energy policy has a clear renewable energy remit with targets to reach 40% energy sourced from renewables by 2020 already underway. Currently, 37% of Latvia’s TPES is from renewable sources including biomass (none of Latvia’s TPES is nuclear), based on exploiting the country’s natural hydro and biomass resources. Latvia’s electricity produced by renewable sources is higher, at about 55% of total electricity production, according to IEA data, of which hydro accounts for 54% from a cascade of dams on the Daugava river. But the use of biomass in Latvia for power production is growing. Wood is a common local energy source used for heat generation, currently accounting for approximately 22% to 29% of primary energy consumption in the country. Electricity generation from coal and oil stopped in 2004, and various initiatives, like the 2010 Law on End-use Energy Efficiency and Energy Development Guidelines 2007-2016, have been adopted in a bid to reduce the average heat consumption in buildings by at least 11% by 2016 and to improve energy efficiency in heat production installations.73 Information campaigns to drive improved literacy and energy audits have improved energy efficiency in the residential and services sectors, the largest energy consumer groups in Latvia, using 54% of total supply.74 Increasing final energy consumption in the transport sector, especially motor transport, is a current issue, but given Latvia’s excellent average fuel economy for passenger cars (slightly better than the EU27 average of 7.18 71 These policies include The Energy Law (July 2005); Grennelle de l’Environnement policy stipulates a 75% reduction in emissions between 1990 and 2050 while also setting specific targets for energy efficiency and renewable energy sources. 72 PBL Netherlands Environmental Assessment Agency / EC Joint Research Centre, Trends in Global CO2 Emissions, 2012. 73 ABB, Latvia: Energy efficiency report, 2011. 74 ABB, Latvia: Energy efficiency report, 2011. The Global Energy Architecture Performance Index Report 2013 litres/100 kilometres), this is a problem that will likely impact further down the line, as further development encourages expansion in transport networks.75 Spotlight: Iceland’s Remarkable Environmental Sustainability Journey Iceland, 9th in the rankings for environmental sustainability, now sources 100% of its electricity from alternative sources. The country generates 73% of electricity from hydro installations using the vast array of rivers and glacial melt waters, while underground heated springs drive 27% of geothermal generation, according to the International Energy Agency. Iceland’s geothermal power and heat sector is one of the largest in the world: geothermal heated water provides residential buildings with approximately 90% of their heating requirements.76 “Geothermal utilisation has reduced CO2 emissions in Iceland by some 2-4 million tonnes annually compared to the burning of fossil fuels.”77 This is more remarkable given the country’s dependency, across sectors, on fossil fuels up to the 1970s. Like Sweden, Iceland was forced by the decade’s price shocks to reconsider this position. The country is not first in this basket, however. Fossil fuels still represent a significant portion of TPES, with 2% of the mix attributable to coal and 16% attributable to oil. The fossil fuel-dependent sectors such as transport and the large fishing boat fleet still run mainly on petroleum products. From a policy perspective, Iceland is pushing towards a zero carbon impact – Iceland’s recent climate change strategy sets out a vision of reducing net greenhouse gas emissions by 50% to 75% by 2050, from a 1990 emissions baseline. This will involve reduction of the fossil fuel component of the fuel mix and carbon sequestration strategies (geothermal plants emit small amounts of CO2 – the aim is to capture and store them). With industry taking advantage of the cheap, abundant and clean geothermal energy resource (new data storage centres are being built78 and the large aluminium manufacturing sector uses geothermal energy to power its smelting rigs) the future of Iceland’s energy sector is looking very sustainable indeed. 75 Government of Latvia, National reform programme of Latvia for implementation of the “Europe 2020” strategy, 2011. 76 Bjornsson, Sveinbjorn, Geothermal Development and Research in Iceland, 2006. 77 Gunnlaugsson, Einar, Orkuveita Reykjavikur, CO2 Saving by Using Geothermal Energy for House Heating in Iceland, Workshop for Decision Makers on Direct Heating Use of Geothermal Resources in Asia, United Nations University, TBLRREM and TBGMED, Tianjin, China, 11-18 May 2008. 78 IT World, Iceland’s carbon-neutral data centre opens for business, 2012. 4. Environmental Sustainability Pull-out: Financing Renewables Prepared using Bloomberg New Energy Finance data Figure 17: Total new investment in clean energy Source: Bloomberg, Global Trends in Renewable Energy Investment, 2011 $300,000 $250,000 $ US million $200,000 $150,000 $100,000 $50,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 World - Total new investment in clean energy The financing of renewable energy projects is growing (see figure 17). Total global investment in renewable energy grew to around US$ 250 billion in 2011 according to Bloomberg New Energy Finance data. This was up 18% from 2010, and is almost three times the level of investment in 2006.79 Yet the increasing numbers belie a drop in the overall growth rate; between 2010 and 2011, growth was only 18%, below the 39% rise in investment from 2009 to 2010.80 79 Liebreich, Michael, Bloomberg New Energy Finance, “Total new investment in clean energy ($m)” chart for the Bloomberg New Energy Finance Summit, 2011. 80 Ibid. Uncertainty in the sector The US was the big spender in 2011, with US$ 51 billion worth of investment in clean energy. The Obama administration has encouraged renewables investment though various means – tax incentives, loan guarantees and other subsidies – and launched new efficiency standards targets for vehicles, with plans to double average fuel efficiency by 2025 through a targeted federal loan scheme. But a proposed cap and trade scheme to limit CO2 emissions was scrapped in 2009. Germany has its bold Energiewende (energy transformation) plan to meet greenhouse gas emissions cuts from 1990 levels by 40% by 2020 and by 80% by 2050, even without nuclear. One of the few rich countries to still be aggressively pursuing a “staggering transformation of the energy infrastructure”, Germany must still build or upgrade 8,300 kilometres (5,157 miles) of transmission infrastructure and numerous backup generators to counter the intermittency of its envisaged wind and solar supply.81 The subsidies required to fund renewables rebates will ultimately lie with Germany’s consumers, 81 The Economist, “Energiewende”, July 2012; available at www.economist.com/node/21559667. The Global Energy Architecture Performance Index Report 2013 35 driving wholesale electricity prices 70% higher by 2025 according to some predictions.82 In the UK, the offshore wind industry is facing challenges. The UK has over 636 turbines in 18 wind farms, over 55% of the global market share, but political pressure to cut costs, regulatory uncertainty and Europe’s financial woes have stalled the funding cycle. The troubled utilities sector accounts for 80% of investment, with an estimated £ 48.6 billion more needed to meet 2020 offshore wind capacity targets.83 In India and the People’s Republic of China, the wind sector has also faced issues. In the People’s Republic of China, insufficient grid access is stalling development, while the end of a key tax break incentive in India may hurt the sector’s growth trajectory through 2012, according to Ernst & Young’s 2012 Renewable Energy Country Attractiveness Indices report. Italy has also cut the preferential rates incentive scheme awarded to renewable projects. Clean energy offers a transition opportunity to India and the People’s Republic of China. In the People’s Republic of China’s 12th five-year plan (2011-2015), energy is a critical concern. As Lin Boqiang comments in his contribution to the Energy for Economic Growth Energy Vision Update 2012, “Energy security concerns, energy scarcity, high energy costs and mitigation of negative environmental externalities may present challenges to the People’s Republic of China’s ability to continue along a path of sustainable economic growth.”84 India faces similar challenges, with only half of the generation capacity expected realized over the last 15 years. Its creaking, coal-dependent grid is coming under ever increasing strain. Both countries are looking to renewables in light of their supply challenges. In 2010, 17% of India’s electricity generation was attributable to alternative and nuclear energy sources, 12% hydro, 2% solar, and 3% nuclear according to IEA data. The same year, India added nearly 2.3 GW of wind capacity, “reaping the benefits of this trend [towards wind] as Indian manufacturers of wind products expand [to] capitalize on India’s currently favourable regulatory regime for renewable energy.”85 India’s government has also approved plans to boost solar capacity to 2 GW sample of country scores for environmental sustainability was selected for comparison against the remaining sample. in the next ten years – a growth plan of unprecedented scale in this technology (the US has just over 9 GW installed and has developed this portfolio over a far longer timeframe). Figure 18 shows an average level of per capita investment for the top quartile performers 22% larger than the rest of the sample for 2013. The results reflect more generally the industrial and consumption profiles of the two clusters; the top quartile, though party to many developing countries, contains a significant proportion of diversified or large service-based economies. These countries generally have deindustrialized GDP bases, with increased investment in renewable energy and improved performance against emissions targets that are potentially easier to achieve than average. Although the rest of the sample includes Australia, the US, the United Arab Emirates, Canada, Singapore, Italy and Germany – all large investors per capita – the generally higher energy and emissions intensity of the wider sample sees an overall poorer performance against the environmental sustainability metrics. These plans have been aided by Chinese solar enterprise. Panel makers are constantly reducing the cost of silicon panel technology – recently, prices have declined by about 35% to less than US$ 1 per watt.86 The People’s Republic of China’s five-year plan includes targets for reducing energy intensity and increasing the share of non-fossil fuels across industry and identifies industries that should contribute up to 8% of GDP by 2015, many of which are in the field of sustainable energy. According to Bloomberg New Energy Finance figures, approximately US$ 51 billion was invested in the People’s Republic of China’s renewable energy sector in 2011, fractionally below the US investment, but roughly 20% of total global investment in the sector during that year.87 The relationship between renewable energy policy and environmental sustainability performance Using clean energy to mitigate climate change How do the varying clean energy investment rates by country correlate with the EAPI’s environmental sustainability scores? Unsurprisingly, fairly well. Figure 18 compares Bloomberg’s investment data against the average sustainability scores awarded to different country samples. The approach is intended to highlight whether there is a meaningful correlation between investment in clean energy and improved performance on this aspect of the energy triangle’s set of indicators. To draw out the analysis, the upper quartile 86 Renewable Energy World, Investing in Dragons and Tigers: The Allure of China and India, 2012. 87 Liebreich, Michael, Bloomberg New Energy Finance, “Total new investment in clean energy ($m)” chart for the Bloomberg New Energy Finance Summit, 2011. As the IEA notes, the global economy-wide costs of decarbonizing power networks will likely result in only a small reduction in overall economic growth rates.88 Given the often lower operating costs and the genuine comparative advantage alternative energy can offer, especially in many developing countries, policymakers should not be too quick to forget the implications of severe global warming nor miss opportunities to shift to a more environmentally sustainable energy model. 88 The low-carbon scenario referred to in the IEA’s Summing up the Parts report shows a total investment requirement between 2010 and 2050 US$ 46 trillion higher than that of the baseline scenario. However, this cost is offset by (undiscounted) fuel savings of US$ 112 trillion, so that the increased investment results in overall net savings compared to the baseline scenario. Source: International Energy Agency (IEA), Summing up the Parts, 2011. Figure 18: EAPI environmental sustainability scores vs total new investment in clean energy per capita Source: World Economic Forum Analysis; Bloomberg New Energy Finance EAPI environmental sustainability score 2013 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 $86.33 Upper quartile 0.67 $70.62 Rest of EAPI sample 82 The Economist, “Energiewende”, July 2012; available at www.economist.com/node/21559667. 83 The Financial Times, “Offshore wind: Financing woes pose a threat to 2020 target date”, 1 June 2012. 84 World Economic Forum and IHS CERA, Energy for Economic Growth Energy Vision Update, 2012. 85 World Economic Forum and IHS CERA, Energy for Economic Growth Energy Vision Update, 2012. 36 The Global Energy Architecture Performance Index Report 2013 0.50 $- $20 $40 $60 $80 Total new investment in clean energy ($) per capita Average total new investment in clean energy (million US$), 2011 Average environmental sustainability score 2013 $100 4. Environmental Sustainability Pull-out: How Does Nuclear Impact EAPI Performance? Every country must make its own choices around its fuel mix. However, as figure 19 shows, countries that have low-carbon fuel mixes score better in the EAPI 2013 due to the reduction in fossil fuel-related air pollution and reduced CO2 emissions they entail. As nuclear generation is low carbon,89 it contributes positively to environmental sustainability scores on the index. We wished to include an indicator that spoke to the storage implications of spent fuel deposits generated by nuclear facilities. 89 This definition is consistent with the International Energy Agency (IEA) Energy Technology Perspectives 2010 BLUE Map scenario, which describes how annual CO2 emissions can be reduced by 50% from 2005 levels, with nuclear power providing 24% of global electricity production. Nuclear waste emits ionizing radiation that is harmful to humans and ecological systems if not processed and stored properly. Temporary safe storage methods exist, but currently there is no universally accepted long-term storage method. Data for waste processing techniques and volumes was not available for the 105 countries assessed by the EAPI, and accurate estimation of volumes and types of waste treated by country is limited due to the large amount of contracted waste disposal and the different types of disposal strategies employed by different countries. The next iteration of the EAPI will aim to access better, more detailed data around nuclear waste. Ultimately, the EAPI does not penalize or reward nuclear, nor any fuel type, based on its perceived economic efficiency – it captures this component of a country’s energy systems in the end prices of the fuels measured. Each country must make its own choices regarding the acceptability of and investment in different fuel sources, nuclear included. Many countries are reassessing the role of nuclear post Fukushima, with countries such as Germany and Japan gradually replacing nuclear with other fuel sources and other countries moving ahead with nuclear as part of the fuel mix. Figure 19: The contribution of nuclear to the low-carbon energy mix Source: World Economic Forum analysis; IEA data 0.76 16,599 18,000 16,000 0.74 EAPI 2013 score 12,000 0.70 10,000 0.68 6,744 8,000 0.66 6,000 0.64 Thousand tonnes oil equivalent (ktoe) 14,000 0.72 4,000 0.62 2,000 0.60 0 Norway Sweden France Switzerland New Zealand Colombia Latvia Denmark Spain United Kingdom EAPI 2013 score EAPI 2013 score (discounting low-carbon benefit of nuclear to environmental sustainability score) Average nuclear in mix of top 10 countries (ktoe) Average nuclear in mix of EAPI sample (ktoe) The Global Energy Architecture Performance Index Report 2013 37 5. Energy Access and Security All countries need a few staple components to ensure energy security. These include reliable networks for transmitting and distributing energy, reducing vulnerability to supply shocks (particularly for countries dependent on a limited range of sources) and management of relations among energy trading partners. Consumers need ready access to energy, but many nations are failing this remit. Today, 1.5 billion people have no access to electricity, while 3 billion people still use cook stoves and traditional biomass for domestic heating and cooking. With the UN Secretary-General’s stated goal to “achieve universal access to modern energy services by 2030,”90 these numbers feel uncomfortably large. Inefficient, antiquated energy supply stifles productivity (foraging for biomass is not a national revenue generator – the proportion of households in developing countries using biomass for cooking declines approximately 0.16% for every 1.0% of income growth91), impairs health (the smoke from inefficient cooking, lighting, and heating devices kills nearly 2 million people a year and is responsible for a range of chronic illnesses92) and makes first priority services such as healthcare and education harder to deliver. In short, when it comes to assuring ready access to secure energy, the world still has plenty to do. This chapter will explore how various countries have performed against this aspect of the energy triangle, highlight some best practices and consider some of the behavioural changes that need to occur in order to boost the aggregate scores for energy access and security – on both the supply and demand sides. The Energy Architecture Performance Index (EAPI) measures how secure each country’s energy systems are and the level of access to energy in three main areas: 1. Diversity of supply 2. Level and quality of access to energy sources 3. Self-sufficiency 90 United Nations Foundation, Achieving Universal Energy Access; available at www.unfoundation.org/news-and-media/ multimedia/videocasts/achieving-universal-energy.html. 91 World Bank, Modern cooking solutions: status and challenges, 2011. 92 United Nations Foundation, Achieving Universal Energy Access; available at www.unfoundation.org/news-and-media/ multimedia/videocasts/achieving-universal-energy.html. Top Ten Energy Access and Security Performers – Key Takeaways Figure 20: Map of top energy access and security performers 1st Norway 6th 0.95 2nd Canada 7th 0.82 3rd Denmark Australia 8th Finland 0.81 Germany 0.79 9th 0.81 5th Sweden 0.80 0.82 4th Oman 0.80 Switzerland 0.79 10th Austria 0.79 The Global Energy Architecture Performance Index Report 2013 39 – There is an exact split between net energy importers and exporters in the top ten, with the five net exporters exporting an average of 228% of the energy they consume and the importers importing on average 53% of the energy they consume. – Whether the countries are exporters or importers, they all (with the exception of Oman) have a highly diversified total primary energy supply with an average score of 0.88 on the Herfindahl index (which measures the concentration of different fuel types in a country’s total primary energy supply). The top ten are thus able to capitalize on geological advantages or a well-established trade network to ensure supply is not dependent on too few energy sources. Excluding Oman (which relies overtly on extracted hydrocarbons to power itself), the average diversity score is 0.93 – far above the EAPI 2013 sample average of 0.68. – 96% of the top ten’s population enjoys access to electricity and an average quality of electricity supply of 6.61 / 7. This compares to an average of 87% electrification and score of 4.84 / 7 for the entire EAPI 2013 sample. Less than 5% of the population of each country uses solid fuels for cooking. Spotlight on Top Performers: Norway, Canada, Denmark and Oman Norway enjoys secure energy and provides energy security to trade partners. Norway has an excellent energy security score. It is also a reliable and transparent supplier. Its economy is largely fuelled by its oil and gas production. The industry generates enormous revenues for Norway. This is reflected in the high score for net energy imports, scoring -562.95% (as a percentage of energy use) for 1st place, which indicates that it is a well-established supplier while speaking to the country’s self-sufficiency as an energy producer with zero (net) imports. With demand for oil and gas likely to rise over the near-term, Norway is positioning itself well by aiming to increase both production and recovery rates by opening new acreage for exploration – for example the recent maritime delimitation treaty between Norway and the Russian Federation, through which Norway has gained 54,000 square miles (139,859 square kilometres) of continental shelf for the development of oil and gas deposits.93 As part of the Nordic wholesale market, Norway enjoys access to a liberalized cross-border integrated electricity market. Its plentiful hydropower and natural gas allocations are ideally suited to variable power generation back-up (e.g. wind) 93 International Energy Agency (IEA), Energy Policies of IEA Countries (Norway), 2011. 40 and are strong drivers for further crossborder interconnections. There is capacity for Norway’s hydro to balance supply and demand peaks on a wider European market, boosting Norway and Europe’s security of supply. This is especially important given Norway’s almost complete reliance on hydropower for electrical generation, as the score of 0.85 (rank 27th) for diversity of total primary energy supply (TPES) reveals; expanding the grid transnationally will mean less exposure to supply constraints during periods of low hydropower availability. Norway’s access metrics display strong scores on every measure, with electrification rates at 99.8% and the percentage of the population using solid fuels for cooking at less than 5%. Norway’s quality of electricity supply scores 6.5 out of 7, indicating a supply that performs (in terms of lack of interruptions and lack of voltage fluctuations) near to the highest standards in the world. Norway has little to improve with regard to the level of access, quality and modernity of its electricity supply. Canada’s diverse portfolio of energy resources drives its high performance. Canada is a diverse and varied set of provinces, but its energy security policy is centrally managed to deliver against some clear national objectives. Canada is a net exporter of both its oil and gas resources. From an oil security perspective, Canada’s oil sands have been a game changer – they represent the majority share of the 173.6 billion barrels of proven oil reserves, ranking Canada 3rd globally and the majority (99%94) of production goes to a long established and stable trade partner – the United States. Canada’s excellent score for net energy imports of -55.01% (as a percentage of energy use) speaks to its strong position as an exporter. Here, geography plays a large role: Canadian oil exports generally stem from the western provinces, directed to refineries in the US Midwest and following the established network of pipelines. Some of Canada’s urban and densely populated eastern provinces import a portion of the energy products they consume, including crude oil from the US. This is small in terms of the overall import/export picture, but, even so, the government would do well to consider mitigating strategies for the risk of supply disruptions, some of which have impacted the central and eastern refineries over recent years. As the main risk of supply shortages revolves around refined products rather than crude oil, plans to create a strategic petroleum reserve (which, surprisingly, Canada does not have) were still under discussion as of mid-2012. The picture for natural gas is rosy. Canada’s market is deep, efficient, competitive and secure and in the event of a physical supply 94 US Energy Information Administration, Canada Country Analysis, 2012. The Global Energy Architecture Performance Index Report 2013 disruption, the federal government or provincial jurisdictions have clear authority to control natural gas flows. High prices are more of a threat than physical infrastructure failure. Denmark has a bold energy security strategy. Denmark’s approach to energy security is considered and simple: reduce consumption through efficiency programmes, boost use of renewables and collaborate closely with European markets. It is also fairly bold; Denmark aims to be independent of fossil fuel use by 2050. These priorities are as set out in its Energy Strategy 2050.95 Denmark has demonstrated a strong historic track record of innovative and inclusive policy-making measures. As the International Energy Agency (IEA) comments in its 2012 Energy Policy Analysis of Denmark, the Energy Strategy 2050 is the outcome of a, “long and stable process and is a continuation of previous policies which commenced in the 1980s and existing uniquely-Danish energy agreements.” Denmark’s strong scores in this section of the EAPI are proof; it scores 0.93 for TPES diversity (of which over 22% is generated by renewable energy sources made up predominantly of biomass and wind – Denmark uses no nuclear) indicating a balanced source of supply portfolio. It is also a net energy exporter, scoring -17.90% for net energy imports (as a percentage of energy use). As with Norway, its access metrics display strong scores on every measure, with electrification rates at 99.8% and the percentage of the population using solid fuels for cooking at less than 5%. It scores first for quality of electricity supply with 6.9 out of 7. Looking forward, Denmark’s energy security strategy seems exciting and innovative. Critically, its Energy Strategy 2050 shows prescience and an understanding of the targets that it has set itself and the stakeholders it must manage to ensure security of supply, as well as performance against economic growth and development goals and environmental sustainability. The document puts findings by the Climate Commission into action by clearly outlining the policy and principles needed to enable a successful transition to a fossil fuel-free energy system. The strategy is technology neutral, and stipulates a clear, time-banded roadmap towards the realization of objectives around energy efficiency, heating and electricity production, transport, and connection to a linked European energy system. It also allows for variation in the operational life of technologies and policies, technological maturity and prices across the energy system.96 95 In 2011, the government published its Energy Strategy 2050, a detailed and ambitious policy document that contains a series of new energy policy initiatives, the purpose of which is to build on existing policies and transform Denmark into a low-carbon society with a stable and affordable energy supply. 96 International Energy Agency (IEA), Denmark Energy Policy, 2012. 5. Energy Access and Security Pull-out: Energy Security and the Rate of Technological Change A common observation is that the world’s energy infrastructure changes slowly. As Simon Henry, Chief Financial Officer of Royal Dutch Shell, commented in the World Economic Forum’s 2011 New Energy Architecture: Enabling an effective transition report, “once a new energy technology is proven, it takes about 30 years for it to achieve 1% of the overall market… New energy sources take time to develop because of the massive scale of our modern energy system, which has been more than a century in the making. And because of the need to build industrial capacity and learn by doing.” Frequently, statistics bear out this judgement; it took 50 years for the proportion of coal and in global total primary energy supply (TPES) to increase from 2% to around 10% in the mid-1850s. It was the same journey for nuclear generation. In the US, nuclear delivered 10% of all electricity after 23 years of operation, taking 38 years to reach a 20% share in 1995. Electricity generation by natural gas turbines in the US followed a similar trajectory; it took 45 years to reach 20% of the US TPES mix.97 However, these changes need to be put into context in order to be interpreted correctly. Long lead times (of between 50 to 70 years) in terms of technology shifts are mostly characteristic of energy systems in which the entire infrastructure is reworked (see figure 21). Existing networks lock-in their technology of choice, creating price and compatibility barriers to new technologies that slow the rate of diffusion. 97 Smil, Vaclav, “A Sceptic Looks at Alternative Energy”, Spectrum, Institute of Electrical and Electronics Engineers, July 2012; available at spectrum.ieee.org/energy/renewables/ a-skeptic-looks-at-alternative-energy/0. Figure 21: Rate of energy source market share growth in the United States Source: Smil, Vaclav, “A skeptic looks at alternative energy”, Spectrum, Institute of Electrical and Electronics Engineers, July 2012 Wind Years to supply 5% of all primary energy Nuclear & wind have not reached 25%; solar PV is negligible Nuclear Years to supply 25% of the market share after reaching 5% Natural gas Oil Coal 1750 1775 1800 1825 1850 1875 1900 1925 1950 1975 2000 An energy technology takes a lifetime to mature. In the United States, for instance, it took coal 103 years to account for just 5% of the total energy consumed and an additional 26 years to reach 25%. Succeeding technologies hit the 5% benchmark sooner, but the 25% benchmark as late or even later: in the United States, nuclear power still has not gotten there. The Global Energy Architecture Performance Index Report 2013 41 Figure 22: US share of total fossil fuel generation (all sectors) Source: US Energy Information Administration The more modular or localized the change is, the faster and more effective the change process, all other things being equal. 90% Share of total fossil fuel generation (all sectors) 80% Kwok Shum Professor of Sustainability, Akio Morita School of Business, Anaheim University 70% 65% 60% 50% 40% 34% 30% 20% 10% 0% 1950 1% 1960 1970 1980 Coal When technology diffusion takes place within an existing network, the rates of change can be much faster.98 An example of this would be the significant switch around the world from coal and oil-based electric generation to natural gas, a process accelerated by existing networks of large electric grids. Accordingly, the world may see a far greater rate of change as electric power systems start to decarbonize. In the US, the expansion of gas production from shale has pushed gas prices down 69% over the past four years, and seen natural gas-fired plants expand to absorb 34% of the generation mix (see figure 22).99 This shift will probably impact positively on EAPI results for the US moving forward, as CO2 emissions from heat and electricity generation fall. While macro-systemic changes in energy architectures may be slow to unfold, intragrid network changes can be more within the 25-35 year range. This faster transition time has benefits. Lower carbon fuels can replace legacy infrastructures to yield more energy per unit of carbon pollution, thus potentially decarbonizing the global primary energy supply by 0.3% per year.100 Energy security and technology development are inextricable. As the IEA has suggested, increased energy efficiency though the accelerated deployment of low-carbon technologies can help, “cut government expenditure, reduce energy import dependency and lower 98 Grubler, Arnulf, Nebojsa Nakichenovich, David G. Victor, Dynamics of energy technologies and global change, Abstract, 1999. 99 Bloomberg, “Natural Gas Matches Coal as Top U.S. Power Fuel”, 2012; available at www.bloomberg.com/news/201208-03/natural-gas-matches-coal-as-top-u-s-power-fuelbgov-barometer.html. 100 Grubler, Arnulf, Nebojsa Nakichenovich, David G. Victor, Dynamics of energy technologies and global change, Abstract, 1999. 42 emissions.”101 Technological diversification of energy supply improves energy security and drives economic benefits: countries could save a total of 450 exajoules (EJ) in fossil fuel purchases by 2020 equating to the last six years of total fossil fuel imports among OECD countries through the adoption of new technologies. According to the IEA 2DS scenario,102 “by 2050, the cumulative fossil fuel savings in the 2DS are almost 9,000 EJ – the equivalent of more than 15 years of current world energy primary demand.”103 From a security point of view, this represents an opportunity. How new technologies in transport may improve security of supply. Transportation is one sector that looks set for significant technological change over the near-term, and this will revolve around efficiency. The sector is energy hungry; demand has doubled since the 1970s and the share of overall final oil consumption attributable to transport has increased by 46% (53% between 1990 and 2010).104 In the US, fuel economy (a measure of the productivity of each vehicle mile travelled in the US economy) continues to improve and is likely to do so over the near to mid-term according to the US Energy Information Petroleum 1990 2000 2010 Gas Administration (EIA), due to further regulation like the Energy Independence and Security Act (EISA).105 This effect is not just limited to the US; the International Council on Clean Transportation (ICCT) estimates that the global car fleet, though expected to double over the next 20 years, will see improving fuel efficiency (see figure 23).106 Indeed, global demand for transport is almost certain to balloon over the near-term – the IEA projects that transport fuel demand will grow by about 40% by 2035.107 This has security implications. To manage them, policy-makers will need to encourage the behavioural shifts required to improve vehicle efficiency and bolster the regulations that force manufacturers to improve vehicle efficiency metrics, as the European Union has done by strengthening the bind of its preliminary voluntary agreements.108 This is especially true of medium- and heavy-duty vehicles used to transport goods, which account for most emissions. 101 International Energy Agency (IEA), Energy Technology Perspectives, 2012. 102 The International Energy Agency’s (IEA) Energy Technology Perspectives 2012 2°C Scenario (2DS) explores the technology options needed to realize a sustainable future based on greater energy efficiency and a more balanced energy system, featuring renewable energy sources and lower emissions. Its emissions trajectory is consistent with the IEA World Energy Outlook’s 450 scenario through 2035. The 2DS identifies the technology options and policy pathways that ensure an 80% chance of limiting the long-term global temperature increase to 2°C - provided that non-energy related CO2 emissions, as well as other greenhouse gases, are also reduced. 103 International Energy Agency (IEA), Energy Technology Perspectives, 2012. 104 McKinsey Global Institute, Resource Revolution: Meeting the world’s energy, materials, food, and water needs, 2011. The Global Energy Architecture Performance Index Report 2013 105 US Energy Information Administration (EIA), Fuel economy standards have affected vehicle efficiency, August 2012; available at www.eia.gov/todayinenergy/detail.cfm?id=7390. 106 International Council on Clean Transportation (ICCT), Global Passenger Car Fuel Economy and/or Greenhouse Gas Emissions Standards, 2010. 107 International Energy Agency (IEA), CO2 Highlights, 2011. 108 International Energy Agency (IEA), CO2 Highlights, 2011. 5. Energy Access and Security Figure 23: Projected passenger vehicle emissions fleet average performance and standards by region Source: International Council on Clean Transportation 300 grams CO2/km 250 200 150 100 50 0 US EU People's Republic of China If major car manufacturers in the United States, Europe, the People’s Republic of China and Japan commit to tightened fuel economy standards, the average fuel economy of new light-duty vehicles could improve from “7 litres per 100 kilometres today to just below 5 litres per 100 kilometres in 2030.”109 Further technological developments and reduced cost curves could encourage a move to new, preferably low-carbon fuels and technologies. As noted by the National Petroleum Council (NPC) in its 2012 paper Advancing Technology for America’s Transportation Future, many new technologies are relatively unproven; but with technologyneutral policy designed to support innovation in transport technologies, the US (and the world) can expect to see electric and plug-in hybrid vehicles, hydrogen fuel-cells, ultra-light vehicle materials and a greater use of biofuels blended with traditional automotive fuels as the new potential engines of change.110 When mature, these technologies (if combined with effective fuel duties and the removal of fossil-fuel subsidies) could reduce the burden on domestic fuel supplies, minimizing the threat of supply disruptions. As a sector more susceptible than most to the geopolitics of oil trade, the world’s transport networks can act as an efficient lever in the transition to a new energy architecture. 109 McKinsey Global Institute, Resource Revolution: Meeting the world’s energy, materials, food, and water needs, 2011. 110 National Petroleum Council (NPC), Advancing Technology for America’s Transportation Future, 2012. The Global Energy Architecture Performance Index Report 2013 43 6. Key Takeaways and Focus Areas While accepting that each and every country has a distinct set of energy priorities and opportunities, Energy Architecture Performance Index (EAPI) analysis has shown some key themes that are developing across the various regions and economic clusters. This section will draw on some of the focus areas, as derived from the results of the EAPI, that countries within the cluster should concentrate on targeting in order to drive up their result on the EAPI and improve their energy system performance moving forwards. Figure 24: High-income OECD and non-OECD cluster performance on the EAPI 2013 Economic growth and development 0.58 High-income OECD High-income non-OECD 0.44 0.31 0.72 0.55 0.77 Key Takeaways Nobody’s perfect - and improvements in environmental sustainability especially should be a global priority. Not one country scores perfectly in the 2013 EAPI. That is reflective of the core message behind the index: the global energy architecture still has a long way to go before it can claim to meet the three imperatives of the triangle. Of these three objectives, environmental sustainability is an area that needs significant attention. For advanced and high-income economies – with the highest impact energy sectors performance against this imperative is lower than the other two (see figure 24). This low performance is a function of three factors: 1. The economic cost of building a truly sustainable energy system 2. The high performance targets (based predominantly on existing legislation or official recommendations) used to assess performance 3. The fact that environmental sustainability was not a priority component of the energy discourse until recently, meaning countries are naturally further behind on environmental sustainability metrics than against the other aspects of the triangle (which have been the historic concern of global energy systems). Tough assessment is critical here; targets considered and set by experts in the field of pollution mitigation and climate policy need to be met. Given the overall global underperformance, it will be interesting to see how the countries assessed by the EAPI progress in this area most especially. Energy access and security Environmental sustainability Globally, some big issues around fossil-fuel subsidies, water use for energy production and effective management of resource wealth need addressing. A large natural energy resource endowment is not a critical performance factor. Having a large provision of exploitable natural resources has enabled high performance for many of the countries under analysis. But the prevalence of countries without large endowments in the upper quartile of results indicates the importance of efficiency and sustainability measures, largely linked to the degree and efficacy of a country’s energy policy. Hence countries like Switzerland, Latvia and France are in the top ten performers overall. Higher gross domestic product (GDP) levels and a diversified economic base allow the top performers to manoeuvre policy in a way that meets the three objectives of the energy triangle. Many hydrocarbon-rich nations with high to median GDP levels also score poorly within the index. This reinforces how resource wealth needs to be managed effectively to drive economic growth as well as development, and to mitigate negative environmental externalities due to reliance on hydrocarbons in total primary energy supply (TPES). Resources, particularly hydrocarbons, can be a boon or a burden depending on the policies employed to manage their development. While helping on some security metrics, they may impact especially badly on the economic growth and development and environmental sustainability performance of an energy system if exploited without due consideration. A concerted global effort is needed to gather more data around the application of fossil-fuel subsidies, water use per type of energy generation and extraction technology (and the stress this places on a country’s overall water resources), and the best models for the development of energy resources. Against each of these energy priorities, a paucity of detailed global data is limiting action – neither the EAPI nor any index can paint the full picture of a country’s energy situation and priorities without a more detailed view of these factors and their impact on a country’s energy architecture. Managing the trade-offs and complementarities Managing the transition to a new energy architecture is not easy. The imperatives of the energy triangle may reinforce or act in tension with one another, forcing difficult trade-offs to be made, and, in some cases, meaning that decisions have unintended consequences. Efforts to bolster energy security through diversification may, for example, have negative implications for environmental sustainability. This can be seen in practice as the European Union (EU) takes advantage of cheaper coal imports from the US. Data from Point Carbon estimates that increased EU coal use will drive a 2.2% rise in EU carbon emissions in 2012, after a 1.8% drop in 2011.111 111 Lewis, Barbara and Karolin Schaps, “Coal exports make U.S. cleaner, EU more polluted”, Reuters, 25 September 2012; available at uk.reuters.com/article/2012/09/25/useurope-emissions-shale-idUKBRE88O0GC20120925. The Global Energy Architecture Performance Index Report 2013 45 In response, some utilities are attempting to make coal clean as well as economical. Coal gasification and carbon capture technologies can reduce greenhouse emissions from a conventional power plant by 80% to 90%, but the trade-off is the increased cost of facilities (up to 91% greater than a conventional plant).112 Policies that support diversification may also come at a considerable cost, with the expansion of technologies not yet at grid parity requiring continued financial support from feed-in tariffs and other financial mechanisms. Focus Areas for Selected Regional and Economic Clusters Figure 25: Focus areas for selected regional and economic clusters In some instances, there are “silver bullets”. An example is Iceland’s development of profitable and clean data centres. Iceland’s electricity is provided by 100% renewable energy sources. This clean and cheap electricity source (a local utility, Landsvirkjun, offers a public rate of US$ 43 per megawatt for 12 years113) coupled with its cool climate means a data centre can operate more energy efficiently and with less carbon impact. In this example, environmental advantages are realized with total cost of ownership up to 60% lower than a similar deployment in London.114 There is no easy formula for managing these trade-offs and complementarities. What is required is a conscious awareness that such balances between the imperatives of the triangle exist and that they are nuanced. In response, decisionmakers must ensure that they carefully weigh their choices, creating a portfolio of policies to create an energy mix that best balances the challenges and opportunities of the energy triangle. EU 27 Selected data Average Score ( 0-1 ) 0.63 0.57 0.58 0.74 EAPI 2013 Economic Growth and Development Environmental Sustainability Energy Access and Security Further work to do on sustainability Environmental Sustainability: EU27 scores above EAPI average on environmental sustainability - 0.58 - but score lags far behind comparably developed Nordic economies with 0.62 CO2 prices: Have decreased with economic slowdown dis-incentivising low carbon energy project development Defining roadmap and regulations for regional interconnection: A priority, to minimise reliance on imports external to the EU zone (predominantly from Norway and Russia). North America Selected data EAPI 2013 Economic Growth and Development Environmental Sustainability Energy Access and Security Average Score ( 0-1 ) 0.60 0.58 0.40 0.80 Focus on energy intensity and emissions Energy Intensity: Critical measure for both U.S ($6.53 GDP per unit) and Canada ($5.22). Improving industrial / residential building stock performance and average fuel economy for passenger cars (regional average of just 9.26 l/100km) could help CO2 emissions: Critical focus (U.S. ranks 96th for CO2 from electricity and heat production / total population, Canada 88th). Reduced demand for gasoline due to economic crisis and drops in coal-fired electricity generation, but U.S. supplies just 16% of TPES from low carbon technologies (Canada 26% - could be better given low carbon opportunities). Problem needs attention with shale gas’ role in power mix moving forwards (global production likely to reach 30% by 2030 - 70% of this from North America). Latin America and the Caribbean Selected data EAPI 2013 Economic Growth and Development Environmental Sustainability Energy Access and Security Average Score ( 0-1 ) 0.57 0.56 0.55 0.61 Each of the sub-indices offer focus areas for LAC 112 Intergovernmental Panel on Climate Change, Special report on Carbon Dioxide Capture and Storage, 2005. 113 Pike Research, Iceland Bets on Green Data Centers, April 2012. 114 Pike Research, Iceland Bets on Green Data Centers, April 2012. 46 The Global Energy Architecture Performance Index Report 2013 Economic Growth and development: Subsidies across all fuel types often used by LAC governments to try and improve social equity - could lead to deteriorating price distortion score (current score for this indicator aligns with EAPI sample) Environmental Sustainability: LAC score (0.55) aligns with EAPI average (0.54). Alternative energy sources relatively well utilised, 33% of LAC’s total primary energy supply, but PM10 performance poor – could potentially improve vehicle efficiency (LAC scores 0.55 for the Average Fuel Economy for passenger cars (l/100km) indicator, below EAPI average of 0.61 Energy Access: Priority to improve quality of electricity supply. New energy wealth pouring into different parts of region could be managed to translate into social development and prevent indirect de-industrialisation 6. Key Takeaways and Focus Areas ASEAN & Developing Asia (DA) Average Score ( 0-1 ) Selected data 0.50 0.41 0.54 0.56 EAPI 2013 Economic Growth and Development Environmental Sustainability Energy Access and Security Each of the sub-indices offer focus areas for Asia Energy Intensity: $5.78 per unit for DA countries and $6.79 for ASEAN, compared with $7.14 for EAPI sample. Better efficiency can mitigate increasing energy demands from predominantly coal and nuclear sources Environmental Sustainability: Average regional score of 0.54, comes in far below top performers’ average of 0.72. Increased use of alternative fuel sources would reduce emissions impact, improving scores Energy Access: DA countries need to focus on lack of energy access impeding economic growth and development. DA countries score only 0.47 across access metrics, ASEAN averages at 0.63. Middle East and North Africa Average Score ( 0-1 ) Selected data EAPI 2013 Economic Growth and Development Environmental Sustainability Energy Access and Security 0.46 0.33 0.36 0.70 Better energy efficiency / fewer emissions High energy-related emissions: Net exporters often perform poorly on the environmental sustainability sub-index due to high emissions from hydrocarbon use / extraction. Fuel exports as % of GDP exhibits strong negative correlation with sustainability score Negative economic impacts: Energy intensity is $5.88 per unit of energy, compared to $7.14 for EAPI overall sample. Brazil, Russia, India and China (BRICs) Average Score ( 0-1 ) Selected data EAPI 2013 Economic Growth and Development Environmental Sustainability Energy Access and Security 0.57 0.51 0.57 0.63 Each of the sub-indices offer focus areas for BRICs Sub-Saharan Africa Selected data EAPI 2013 Economic Growth and Development Environmental Sustainability Energy Access and Security Average Score ( 0-1 ) 0.44 0.38 0.65 0.29 Improving Energy Access Access: Struggle to supply citizens with basic energy services. In 15+ countries over 50% of population uses solid fuels for cooking Quality of supply: 25 countries, mainly from SSA, receive a score < 3.5 / 7 for quality of electricity supply, indicating unreliable and insufficient supply Energy Efficiency: Critical factor, for different reasons: Russian energy sector = quarter of GDP through energy / export earnings (Chatham House) but efficiency half as good as the US. Efficiency savings could be recognised, reducing CO2 p.c. (12mt - one of the highest in the world). Brazil’s good intensity score ($8.40GDP / per unit) indicates transition stage of economy – improved living standards and GDP growth may reduce score. India and China relatively energy inefficient, but China building strong clean energy sector and demand management solutions due to relatively modern grid. CO2 emissions: Critical focus for Russia and China –rank 93rd & 63rd respectively) due to reliance on carbon intensive fossil fuels in TPES (in China coal = 66% of TPES, in Russia 16% from coal, 20% from oil) and large demand (China uses most energy in world – 2438 mtoe - Russia 3rd most (after U.S.) with a 703 mtoe TPES) Energy Access: Economies a blend of energy ‘haves’ and ‘have nots’ – India scores poorly on access metrics (0.45 compared to EAPI average of 0.73). Russia, Brazil and China highly electrified but suffer from quality of supply issues, scoring an average 0.64 / 1 for this metric. The Global Energy Architecture Performance Index Report 2013 47 7. Definitions Statistical Economic/Regional Clusters Herfindahl index – A normalized Herfindahl index is used here as a measure of the size of fuel-type consumption in relation to a country’s total energy industry. The score represents the sum of the squares of the total primary energy supply types of the different countries being analysed within the energy industry, where the energy shares are expressed as fractions. The result can range from 0 to 1.0, moving from a large number of individual energy sources to a single-source supply. In this case, increases in the score indicate a decrease in diversity and vice versa. In the context of this report, the designations only cover the countries available within the Energy Architecture Performance Index 2013 sample. The formula is as follows: H = N ∑ si 2 where si is the fuel mix share of the fuel i in the overall mix, and N is the number of fuels. Then, to normalize: H = (H-1/N) / (1-1/N) The normalized result can range from 0 to 1. spread charts – Spread charts show the distribution of a dataset. The bar equals the spread of data from minimum, through the median to the maximum value of the dataset. The quartiles are a set of values that divide the data set into four equal groups, each representing one-fourth of the population being sampled. The upper quartile represents the split of the highest 25% of data – the top performers. The lower quartile represents the split of the lowest 25% of data – the bottom performers. Advanced Economies – A term used by the International Monetary Fund to describe the following developed countries: Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Iceland, Ireland, Israel, Italy, Japan, Republic of Korea, Netherlands, New Zealand, Norway, Portugal, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, United Kingdom and United States. APEC – The Asia-Pacific Economic Cooperation’s primary goal is to support sustainable economic growth and prosperity in the Asia-Pacific region. In the context of this report, the APEC designation only covers the countries of APEC within the EAPI 2013 sample, which include: Australia, Brunei Darussalam, Canada, Chile, Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, People’s Republic of China, Peru, Philippines, Russian Federation, Singapore, Thailand, United States and Vietnam. ASEAN – The Association of Southeast Asian Nations, or ASEAN, was established on 8 August 1967 in Bangkok, Thailand, and is made up of: Brunei Darussalam, Cambodia, Indonesia, Malaysia, Philippines, Thailand and Vietnam. Singapore is included in the Advanced Economies regional grouping. This report excludes data for Laos and Myanmar, which should be discounted from the grouping. BRIC – The BRIC designation comprises the economies of Brazil, the Russian Federation, India and the People’s Republic of China. 48 The Global Energy Architecture Performance Index Report 2013 Central and Eastern Europe – This grouping comprises Bulgaria, Croatia, Hungary, Latvia, Lithuania, Poland, Romania and Turkey. Commonwealth of Independent States – This grouping is made up of Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Mongolia, Russian Federation, Tajikistan and Ukraine. Developing Asia – Developing Asia is an International Monetary Fund definition for countries in the Asia region that are less developed than neighbouring counterparts. These include Cambodia, India, Indonesia, Malaysia, Nepal, Pakistan, People’s Republic of China, Philippines, Sri Lanka, Thailand and Vietnam. EU15 – Fifteen was the number of Member Countries in the European Union prior to the accession of ten candidate countries on 1 May 2004. The EU15 comprised the following 15 countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and United Kingdom. This report excludes data for Luxembourg, which should be discounted from the grouping. G20 – The Group of Twenty, or G20, is a forum for international cooperation that brings together the world’s major advanced and emerging economies. In the context of this report, the G20 designation only covers the G20 countries within the EAPI 2013 sample: Argentina, Australia, Brazil, Canada, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, People’s Republic of China, Russian Federation, Saudi Arabia, South Africa, Turkey, United Kingdom and United States. High-Income (OECD) – A World Bank classification encompassing: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Republic of Korea, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, United Kingdom and United States. High-Income (non-OECD) – A World Bank classification encompassing: Bahrain, Brunei Darussalam, Croatia, Cyprus, Kuwait, Oman, Qatar, Saudi Arabia, Singapore, Trinidad and Tobago, and United Arab Emirates. Latin America and the Caribbean – The Latin America and the Caribbean (LAC) region encompasses Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Haiti, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago, and Uruguay MENA – The Middle East and North Africa (MENA) is an economically diverse region that includes both the oil-rich economies in the Gulf and countries that are resource-scarce in relation to population. In the context of this report, the MENA designation only covers the countries of MENA within the EAPI 2013 sample: Algeria, Bahrain, Egypt, Iran, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Tunisia and United Arab Emirates. MIST – The MIST designation encompasses Mexico, Indonesia, South Korea and Turkey. NORD – The NORD designation encompasses the economies of Denmark, Finland, Iceland, Norway and Sweden. SSA – The designation Sub-Saharan Africa (SSA) is used to indicate all of Africa except northern Africa and ex Sudan, which is included in Sub-Saharan Africa. SSA comprises: Botswana, Cameroon, Cote d’Ivoire, Ethiopia, Ghana, Kenya, Mozambique, Namibia, Nigeria, Senegal, South Africa, Tanzania and Zambia. The Global Energy Architecture Performance Index Report 2013 49 8. Methodological Addendum This section describes the methodology behind the Energy Architecture Performance Index (EAPI) 2013. The EAPI is a composite index that measures a global energy systems’ performance across three imperatives: economic growth and development, environmental sustainability, and energy access and security. Methodology The EAPI focuses on tracking specific and output oriented indicators to measure the energy system performance of a variety of countries. These include 16 indicators aggregated into three baskets relating to the three imperatives of the energy triangle economic growth and development, environmental sustainability, and access and security of supply to both score and rank the performance of each country’s energy architecture. The EAPI is split into three sub-indices. The score attained on each sub-index is averaged to generate an overall score. The three sub-indices are: 1. Economic growth and development the extent to which energy architecture supports, rather than detracts from, economic growth and development 2. Environmental sustainability the extent to which energy architecture has been constructed to minimize negative environmental externalities 3. Energy access and security the extent to which energy architecture is at risk to an energy security impact, and whether adequate access to energy is provided to all parts of the population. How the Energy Architecture Performance Index functions An index is a statistical measure of the changes across a portfolio of indicators reflective of an entity – in this case, energy systems. Indices serve the purpose of reducing complexity by tracking specific indicators representative of a whole system so that, ideally, a change in the index is reflective of a proportional change in the real world. In this context, the term 50 “indicator” provides empirical evidence that a certain desired outcome has been achieved or not, and that decision-makers within energy systems can use to assess progress towards their set objectives. The distinction here between “input” and “output” indicators is critical; the EAPI grades as “inputs” indicators that measure resources (human or financial) specifically deployed to a particular energy project or programme, whereas “output” indicators measure the quantity of energy-related goods or services produced and the efficiency of energy production. Reality and its statistical representation cannot be assumed to converge in perfect harmony, and the statistical results of the analysis need to be set in context in an understanding of the real world situation. Furthermore, as an initial effort, the set of indicators the EAPI measures is by no means definitive. The EAPI team has had to exclude data it wished to include, striven after data that was not available in suitable quality or coverage, and had to make assumptions relating to how indicators should be measured to reflect a high or low score within the EAPI. Any targets used are derived from accepted policy documentation or expert judgments to ensure the Index produces policy-relevant insights and rankings. The team also collected historic indicator data and calculated an EAPI 2009 score against the same indicators and thresholds as the EAPI 2013 sample. It provides a view of how energy system performance has changed over time. While scores of individual countries do change over time, the average change in rank between 2009 and 2013 is 0 and the correlation coefficient between the 2009 and 2013 scores is 0.93. The relative similarity of scores across the 5 year window speaks to the long lead times involved in most energy architectural changes. For more detail around the rate of change, please see the Energy Security and the Rate of Technological Change pull-out. A more detailed time-series analysis of EAPI 2009 scores can be accessed on the online Spotfire data platform, where results can also be modelled dynamically. The Global Energy Architecture Performance Index Report 2013 EAPI 2013 Indicators: Selection Criteria and Profiles The EAPI team is grateful to the Expert Panel for each individual’s specific feedback and recommendations around data sourcing and the data selection criteria. Where possible, the EAPI team aimed to select indicators against the following criteria: – Output data only – measuring outputoriented observational data (with a specific, definable relationship to the sub-index in question) or a best available proxy, rather than estimates –Reliability – using reliable source data from renowned institutions –Reusability – data sourced from providers with which the EAPI can work on an annual basis and that can therefore be updated with ease –Quality – selected data represents the best measure available given constraints; with this in mind, all potential datasets were reviewed by the Expert Panel for quality and verifiability and those that did not meet these basic quality standards were discarded115 –Completeness – data of adequate global and temporal coverage and consistently treated and checked for periodicity to ensure the EAPI’s future sustainability. Where data is missing for a particular year within an indicator, the latest available data point is extrapolated forwards until a more recent result is obtained. No single data point has been extrapolated forwards for more than three years in any one instance, excepting for the “nitrous oxide emissions in industrial and energy processes (% of total nitrous oxide emissions)” indicator, for which the latest data available ends in 2005. 115 Please see the “Data Paucity & Country Exclusions” section of the Methodological Addendum for further detail around these criteria. Indicator profiles The table below details each of the indicators selected, the weight attributed to it within its basket (or sub-index), what it measures and the energy system objective it contributes to, either positively or negatively. Table 4: Indicator profiles Energy system objective Economic growth and development Measure (of) Indicator Name Efficiency Energy intensity (GDP per unit of energy use (PPP US$ per kg of oil equivalent)) 0.25 ENINTENS Degree of artificial distortion to gasoline pricing (index) 0.125 SUPGASPRICE Degree of artificial distortion to diesel pricing (index) 0.125 DIESELPRICE Electricity prices for industry (US$ per kilowatt-hour) 0.25 ELECPRICEIND Cost of energy imports (% GDP) 0.125 FUELIMPORTSGDP Value of energy exports (% GDP) 0.125 FUELEXPGDP Lack of distortion/ affordability Supportive/detracts from growth Share of low-carbon fuel sources in the energy mix Indicator code Alternative and nuclear energy (% of total energy use, incl. biomass) 0.2 ALTNUCENINCLBIO Nitrous oxide emissions in energy sector (thousand metric tonnes of CO2 equivalent)/total population 0.2 NO2 CO2 emissions from electricity and heat production, total/total population 0.2 CO2HEATELEC PM10, country level (micrograms per cubic metre) 0.2 PM10 Average fuel economy for passenger cars (l/100 km) 0.2 AVCARLPKM Electrification rate (% of population) 0.2 ELECRATE Quality of electricity supply (1-7) 0.2 QUALELEC Percentage of population using solid fuels for cooking (%) 0.2 POPSOLFUELS Self-sufficiency Import dependence (energy imports, net % energy use) 0.2 ENIMPORTS Diversity of supply Diversity of total primary energy supply (Herfindahl index) 0.2 DIVTPES Environmental sustainability Emissions impact Energy access and security Indicator weight Level and quality of access Weighting: Approach and Rationale Within the aggregate score, each of the three baskets receives equal priority and weighting. Fundamentally, the World Economic Forum believes that the imperatives of the energy triangle are of mutual importance and are interlinked. To bring greater balance to the energy triangle and enable an effective transition to a new energy architecture, it is important that policy-makers look to the long term, providing a more stable policy environment based upon an in-depth understanding of the trade-offs they are making. Where possible, decision-makers should aim to take actions that result in positive net benefits for all three imperatives of the energy triangle. Each indicator is equally weighted within the three baskets, with the exception of the economic growth and development basket. Here, indicators that correlated closely (due to their measuring similar, though not identical, aspects of energy architecture performance) had their weights “diluted” to prevent the double stacking of scores, for example a country receiving two high scores for subsidy/ high tax free pricing of both super gasoline and diesel. As such, the super gasoline and diesel indicators combine to form a mini-index within the economic growth and development basket, and this mini-index is allocated equal weighting with the other indicators. Where a country’s scores across two similar indicators were likely to run orthogonal to one another (for instance across the fuel imports and exports as a share of GDP indicators), the weights were again “diluted” so as to avoid a narrower statistical distribution of scores across the basket and to offset any double stacking of scores. Similarly, the fuel imports and exports as a share of GDP indicators are combined to form a mini-index within the economic growth and development basket, and this mini-index is allocated equal weighting with the other indicators. The Global Energy Architecture Performance Index Report 2013 51 52 The Global Energy Architecture Performance Index Report 2013 * “C” in this column designates confidential information sourced from the International Energy Agency (IEA) that cannot be distributed publically. Table 5: Raw scores per indicator 8. Methodological Addendum The Global Energy Architecture Performance Index Report 2013 53 54 The Global Energy Architecture Performance Index Report 2013 8. Methodological Addendum The Global Energy Architecture Performance Index Report 2013 55 56 The Global Energy Architecture Performance Index Report 2013 2010 2010 Provides an indication of the country-level efficiency of energy use, and whether there is an opportunity to improve energy availability by reducing energy intensity Provides an indication of the extent to which the energy sector has a negative impact on economic growth. Import bill is calculated in US$ at current prices and is based on the import of fuels (mineral fuels, lubricants and related materials) then divided by country GDP in US$ (current), the monetary value of all the finished goods and services produced within a country’s borders on an annualized basis GDP per unit of energy use (PPP US$ per kg of oil equiv.) Fuel imports (% GDP) World Trade Organization and World Bank 19802010 Fuel Imports, US$ at current prices. Fuel imports include mineral fuels, lubricants and related materials as classified under the Standard International Trade Classification, Revision 3, Eurostat. GDP is the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports, calculated using today’s dollar value. Energy use per PPP GDP is the kilogram of oil equivalent of energy use per constant PPP GDP. Energy use refers to use of primary energy before transformation to other end-use fuels, which is equal to indigenous production plus imports and stock changes, minus exports and fuels supplied to ships and aircraft engaged in international transport. PPP GDP is gross domestic product converted to 2005 constant international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GDP as a US dollar has in the United States. 19802009 – Any transformation to raw data required Technical notes – Rationale for threshold and ceiling values Time series stat.wto.org/Home /WSDBHome.aspx ?Language=E databank.worldbank. org/ddp/home. do?Step=12&id=4& CNO=2 databank.worldbank. org/ddp/home.do?S tep=12&id=4&CNO=2 URL – Low performance thresholds World Bank and International Energy Agency Sources – Target/ceiling values Latest data No data available for target setting. The low performance distribution threshold is based on the lowest performance value for 2010. The target value is 0%. The target value is based on the highest performance value for 2010, with the spread adjusted for Lesotho’s high outlying result. Lesotho features a large concentration of South African industry, population and agriculture, and diamonds are major export contributors, distorting this country’s result. No specific global targets for energy intensity. The Kyoto Protocol sets targets for total greenhouse gas emissions for Annex I (developed) countries. The European Council for an Energy Efficient Economy recommends 20% reductions by 2020 in energy intensity across many different eurozone countries, but not universally. The low performance distribution threshold is based on the lowest performance value for 2010. Additional comments* The additional notes column includes further detail (as necessary) regarding the normalization of indicator data, including: Rationale for inclusion Table 6 provides the metadata for each of the selected indicators. This includes the title, the rationale for each indicator’s inclusion in the EAPI, the year for which the latest data is available, the source of the data, the time series it covers, any technical notes relating to the construction of the indicator including nominators, denominators and unit; and the URL for the source data (if available). Title Table 6: Indicator metadata Indicator Metadata Diesel Level of price distortion through subsidy or tax (index 0-1) Super gasoline Level of price distortion through subsidy or tax (index 0-1) As above Fuel subsidies are a burden on economies and encourage wasteful fuel use. Aligning fossil fuel pricing with market prices would foster greater economic and energy efficiency. Fossil fuel taxation is a powerful revenue tool for, most notably, the transport sector. But very high taxation burdens the consumer and drives inflation as costs rise for transporting goods around a country, and revenue generated from taxation may be elastic over the long-term as consumers adjust their consumption in light of higher prices. The EAPI therefore proposes that a high tax rate is the optimal pricing mechanism, on a global basis and excluding consideration of other externalities associated with fossil fuel consumption. A very high subsidy is therefore penalized, as is very high tax, though not equally – the EAPI uses an offset bell-curve that measures the standard deviations from the target fuel price (which is between the taxation and very high taxation price bands). The price differential between high subsidy and high tax is greater than that between high tax and very high tax. 2010 2010 GIZ (Gesellschaft für Internationale Zusammenarbeit), the German development agency GIZ (Gesellschaft für Internationale Zusammenarbeit), the German development agency 20042010 20042010 Price per litre of diesel in US cents. All prices relate to Nov. 2010 data. Prices reflect Brent crude price of US$ 81 per barrel. All pricing data related to GIZ database. Score derived from level of a country’s deviation from a threshold price, set as the median point in the very high taxation boundary per fossil fuel, per year. For more information regarding thresholds and median point calculations, see above. Price per litre of super gasoline in US cents. All prices relate to November 2010 data. Prices reflect Brent crude price of US$ 81 per barrel (reference day 16 to 18 November 2010). All pricing data related to GIZ database. Score derived from the level of a country’s deviation from a threshold price, set as the threshold point between high taxation and very high taxation per fossil fuel, per year. These boundaries are defined by GIZ in their International Fuel Prices report. A very high subsidy equates with a retail price of gasoline and diesel below price of crude oil on world market. A subsidy is indicated by a price of gasoline and diesel above the price of crude oil on the world market and below the price level of the United States. Cost-covering retail prices incl. industry margin, VAT and incl. approx. US$ 0.10. This fuel price without other specific fuel taxes may be considered as the international minimum benchmark for a non-subsidized fuel. Taxation is indicated by a price of gasoline and diesel above price level of the United States and below price level of Romania/Luxembourg (in November 2010, fuel prices were the lowest in EU15). Prices in EU countries are subject to VAT, specific fuel taxes as well as other country-specific duties and taxes. Very high taxation is indicated by a retail price of gasoline and diesel above the price level of Romania/Luxembourg. At these levels, countries are effectively using taxes to generate revenues and to encourage energy efficiency in the transport sector. www.giz.de/ Themen/en/29957. htm www.giz.de/ Themen /en/29957.htm The low performance distribution threshold is based on the lowest performance value for 2010: 0. The target value is 1. The low performance distribution threshold is based on the lowest performance value for 2010: 0. The target value is 1. 8. Methodological Addendum The Global Energy Architecture Performance Index Report 2013 57 58 The Global Energy Architecture Performance Index Report 2013 Latest data 2009 2010 Rationale for inclusion Energy consumption is strongly correlated to GDP, and lower energy prices are key drivers of economic growth, with electrical generation and other energy efficiencies good proxies for the Solow residual, describing technological progress. The EAPI therefore uses this data as an indicator of low energy prices having a positive impact on growth. Subsidy data is unavailable across this data point, meaning that electricity prices must be assumed to be the product of a liberal energy market pricing mechanism at an aggregate level, although in reality, a larger portion of some countries’ bills may be determined by political or regulatory decisions warranting a subsidy, and a smaller share depending on the actual supply and demand conditions Provides an indication of the extent to which the energy sector has a positive contribution to economic growth. Export bill is calculated in US$ at current prices and is based on the export of fuels (mineral fuels, lubricants and related materials) then divided by country GDP in US$ (current), the monetary value of all the finished goods and services produced within a country’s borders on an annualized basis. Electricity Prices for industry (US$/kWh) Fuel exports (% GDP) Title World Trade Organization and World Bank Energy Information Administration, Monthly Energy Review, May 2010, Table 9.9. Other Countries -- International Energy Agency (IEA), Energy Prices & Taxes - Quarterly Statistics, Fourth Quarter 2009, Part II, Section D, Table 22, and Part III, Section B, Table 19, 2008. Sources 19802010 20012009 Time series Fuel exports, US$ at current prices. Fuel exports include (mineral fuels, lubricants and related materials) as classified under the Standard International Trade Classification, Revision 3, Eurostat. GDP is the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports, calculated using today’s dollar value. NB: The International Energy Agency (IEA) maintains annual and quarterly time series of this price data that begin in 1978, and that also include the most recent quarterly prices. Information on purchasing this data online from the IEA is available at: data.iea.org/ieastore/default.asp Price includes state and local taxes, energy or demand charges, customer service charges, environmental surcharges, franchise fees, fuel adjustments, and other miscellaneous charges applied to end-use customers during normal billing operations. Prices do not include deferred charges, credits or other adjustments, such as fuel or revenue from purchased power, from previous reporting periods. Energy end-use prices including taxes, converted using exchange rates. Technical notes stat.wto.org/Home/ WSDBHome.aspx? Language=E databank.worldbank. org/ddp/home.do? Step=12&id=4&CNO =2 www.iea.org/stats/ prodresult. asp?PRODUCT =Electricity/Heat www.eia.gov/ electricity /data.cfm URL No data available for target setting. The low performance distribution threshold is based on the lowest performance value for 2010. The target value is fixed at the highest value for the 2010 dataset, 54%. The inclusion of this indicator was frequently debated by the team, given the well understood effects of indirectdeindustrialization, the symptoms of which include the decline in productivity of national manufacturing sectors due to the currency strengthening effect of natural resource endowment and exploitation, and the following shift of labour resources away from the nontradable goods sectors. However, given the EAPI’s strict focus on country energy architecture and, within this basket, the contribution of energy to GDP, it was felt that on an overall global basis, revenues from fossil fuel endowments contributed to country GDP, especially when successful boom minimization structures (e.g. investment into sovereign wealth funds, stabilizing the powerful revenue stream) were used to reduce the risk of Dutch disease and drive competitiveness through investment in education and infrastructure programmes. No specific targets available. The low performance distribution threshold is based on the lowest performance value for 2010. The target value is based on the highest performance value for 2010, with the spread adjusted for Italy’s high and outlying result. Additional comments* 2009 2008 Carbon dioxide emissions from electricity and energy production contribute to climate change and ensuing environmental degradation. CO2 emissions from electricity and heat production, total/ total population Suspended particulates contribute to acute lower respiratory infections and other diseases such as cancer. Finer particulates lodge deep in lung tissue, causing greater damage than coarser particulates. Annual average concentrations of greater than 10 micrograms per cubic metre (μg/m3) are known to be injurious to human health. 2005 Nitrous oxide is both an ozone-depleting compound and greenhouse gas, and is now the largest ozone-depleting substance emitted through human activities. It is one of a group of highly reactive nitrogen oxides (NOx). NO2 forms quickly from emissions from cars, trucks and buses, power plants, and off-road equipment. In addition to contributing to the formation of ground-level ozone, and fine particle pollution, NO2 is linked with a number of adverse effects on the respiratory system. Nitrous oxide emissions in energy sector (thousand metric tonnes of CO2 equivalent)/total population PM10, country level (micrograms per cubic metre) 2011 Alternative and nuclear energy production reduces reliance on fossil fuels, which produce greenhouse gases and pollute the atmosphere. Inclusion of this indicator supposes that nuclear energy is also environmentally preferable to fossil fuel usage given the higher volume of negative environmental externalities associated with fossil fuel mining, power production and emissions. Alternative and nuclear energy (% of total energy use, incl. biomass) World Bank (World Bank, Development Research Group and Environment Department) World Bank and International Energy Agency World Bank and International Energy Agency International Energy Agency 19902009 19802008 19902005 19802010 Particulate matter concentrations refer to fine suspended particulates less than 10 microns in diameter (PM10) that are capable of penetrating deep into the respiratory tract and causing significant health damage. Data for countries and aggregates for regions and income groups are urban-population weighted. The estimates represent the average annual exposure level of the average urban resident to outdoor PM10. The state of a country’s energy technology and pollution controls is an important determinant of PM10 concentrations. CO2 emissions from electricity and heat production equal the sum of the IEA’s categories of CO2 emissions: main activity producer electricity and heat, which contains the sum of emissions from main activity producer electricity generation, combined heat and power generation, and heat plants. Main activity producers (formerly known as public utilities) are defined as those undertakings whose primary activity is to supply the public. They may be publicly or privately owned. This corresponds to the Intergovernmental Panel on Climate Change Source/Sink Category 1 A 1 a. For the CO2 emissions from fuel combustion, emissions from own on-site use of fuel in power plants (EPOWERPLT) are also included. Energy processes produce nitrous oxide emissions through the combustion of fossil fuels and biofuels. Alternative energy includes hydropower and nuclear, geothermal, biomass and solar power, among others. databank.worldbank. org/ddp/home.o?Step =12&id=4&CNO=2 databank.worldbank. org/ddp/home.do? Step=12&id=4&CNO =2 databank.world bank.org/ddp/ home.do?Step= 12&id=4&CNO=2 www.worldenergy outlook.org/ The target value of 0 represents the ideal state of PM10 country-level particulate emissions. The low performance distribution threshold is based on the 20 μg/m3 annual mean stipulated by the World Health Organization’s recommendations – scores over this threshold score 0. The target value of 0% represents the ideal state of CO2 emissions from electricity and heat. The low performance distribution threshold is 0.000016 metric tonnes per capita. No universal targets applicable. The low performance distribution threshold is based on the lowest performance value for 2010, with outliers above 53% of total emissions automatically earning a score of 0. The target value is 0% of total emissions. The low performance distribution threshold is based on the lowest performance value for 2010. The target value is based on expert opinion, stipulating that an energy system 100% reliant on alternative and nuclear energy represents the ideal. 8. Methodological Addendum The Global Energy Architecture Performance Index Report 2013 59 60 The Global Energy Architecture Performance Index Report 2013 Latest data 2010 2009 2011 2007 Rationale for inclusion The transport sector is one of the most important areas requiring attention in improving environmental sustainability. Over 50% of oil use around the world is for transport, and nearly all the recent and future expected growth in that use comes from increased transport activity (source: International Energy Agency). Fuel efficiency directly affects emissions causing pollution by affecting the amount of fuel used. Over the last few years, there has been international focus on the issue of access to energy. High global energy and food prices have shown the impact on both the global economy and the world’s poor. In addition to the UN General Assembly adopting “sustainable energy for all” as an annual theme, the UN Advisory Group on Energy and Climate Change has called for universal access to modern energy services by 2030. Survey participant responses to: “How would you assess the quality of the electricity supply in your country (lack of interruptions and lack of voltage fluctuations)?” [1 = insufficient and suffers frequent interruptions; 7 = sufficient & reliable] | 2009-10 weighted avg. The number of people who use traditional biomass, such as wood and manure, is projected to rise from 2.7 billion today, to 2.8 billion in 2030. According to estimates from the World Health Organization (WHO) and International Energy Agency (IEA) it is estimated that household air pollution from the use of these traditional sources of biomass in stoves with inadequate Average fuel economy for passenger cars (l/100 km) Electrification rate (%) Quality of electricity supply (1-7) % of population using solid fuels for cooking Title United Nations Statistics Division, The Millennium Development Goals Database World Economic Forum, Global Competitiveness Index International Energy Agency, Electricity Access Database International Energy Agency, by special arrangement with the World Economic Forum Sources 19902007 20052011 20072009 19902010 Time series Solid fuel information is either extrapolated (single year data point), averaged (two or more years that are spaced four or fewer years apart) or a linear regression is performed when solid fuel use information is available for two or more years that are spaced at least five years apart. All countries with a gross national income (GNI) per capita above [1 = insufficient and suffers frequent interruptions; 7 = sufficient and reliable] | 2009–10 weighted average Survey response to: “How would you assess the quality of the electricity supply in your country (lack of interruptions and lack of voltage fluctuations)?” The IEA data reflects urban and rural electrification levels collected from industry, national surveys and international sources, assessed in assistance with World Population Prospects - The 2011 Revision, published by the United Nations (UN). Additionally, UN data has been adjusted with data from the IEA Statistics Division in order to get the most accurate demographic estimate for 2009. Measure of the average litres of gasoline equivalent used per hundred kilometres driven, indicating the efficiency of a country’s transport system. Passenger cars in this instance need to stand as proxy for the entire transport sector, given the paucity of global data across this indicator for both light-duty and heavyduty vehicle fleets. Technical notes mdgs.un.org/unsd/ mdg/SeriesDetail. aspx?srid=712 www.weforum. org/issues/globalcompetitiveness en.openei.org/wiki/ IEA-Electricity_ Access_Database www.worldenergy outlook.org/ URL This indicator correlates highly with GDP levels. For literature relating to targets, the EAPI focussed its analysis on developing country policy targets in order to reflect the status quo. The Forum of Energy Ministers of Africa has committed to providing access to modern cooking energy to 50% of the rural poor. In 2005, the Economic Community of West African No specific targets available due to qualitative nature of data range. The low performance distribution threshold is based on the lowest performance value for 2010. The target value is based on the highest performance value for 2010. United Nations Secretary-General Ban Ki-moon’s Advisory Group on Energy and Climate Change stipulated a target to achieve universal access to modern energy services by 2030. The EAPI has therefore set a target of 100% for this indicator. The target value represents the ideal state of country-level electrification rates. The low performance distribution threshold is based on the lowest performance values from the 2010 data range. In its 2007 review of the EU CO2 and cars strategy, the European Commission announced that the EU objective of 120 g CO2/km (5.2 l/100 km or 45.6 mpg) by 2012 must be met. A resolution was formally adopted to enforce mandatory fuel efficiency standards of 120 g/km (5.2 l/100 km or 45.6 mpg), with carmakers achieving 130 g/km (5.6 l/100 km or 42 mpg) through technical improvements and the remaining 10 g/km coming from complementary measures (e.g. efficient tires and air conditioners, tire pressure monitoring systems, gear shift indicators, improvements in light-duty vehicles, and increased use of biofuels). Thus, the target value of 5.2 l/100 km represents the EU target. The low performance distribution threshold is based on the lowest performance values from the 2010 data range. Additional comments* 19802010 The normalized result can range from 0 to 1.0 H = (H-1/N)/(1-1/N) where si is the fuel mix share of the fuel i in the overall mix and N is the number of fuels. Then, to normalize: H = N ∑ si 2 The Herfindahl index is used here as a measure of the size of fuel-type consumption in relation to a country’s total energy industry. The score represents the sum of the squares of the total primary energy supply types of the different country’s being analysed within the energy industry, where the energy shares are expressed as fractions. The result can range from 0 to 1.0, moving from a large number of individual energy sources to a single-source supply. In this case, increases in the score indicate a decrease in diversity and vice versa. The formula is as follows: Total primary energy supply represents domestic supply only and is broken down into energy type. It represents inland demand only and, except for world energy supply, excludes international marine and aviation bunkers. 2011 Energy resilience rather than independence is more aligned with this report’s definition of energy security. “The foundation of a secure energy system is to need less energy in the first place, then to get it from sources that are inherently invulnerable because they’re diverse [and] dispersed…” (Source: Teich, Albert H., Technology and the Future, Ninth edition, Thomson, 2003, p. 169). A highly centralized energy system that is reliant on a homogenous fuel type is inherently vulnerable to supply shocks and price volatility. A diverse supply portfolio can mitigate these potential risks. Please note, data of import counterpart diversity was sought but was not available across the country range required. Counterpart diversity is a critical measure of a country’s energy market access. The EAPI has sourced import counterpart data for Organisation for Economic Co-operation and Development (OECD) countries, and is using this for a special pull-out in the report. Diversity of total primary energy supply (Herfindahl index) International Energy Agency, World Energy Outlook, 2011 Net energy imports are estimated as energy use less production, both measured in oil equivalents. A negative value indicates that the country is a net exporter. Energy use refers to use of primary energy before transformation to other end-use fuels, which is equal to indigenous production plus imports and stock changes, minus exports and fuels supplied to ships and aircraft engaged in international transport. 19802010 2010 he security of a country’s primary energy supplies may be threatened if it is reliant on a high proportion of imports (especially if these are concentrated among relatively few trade partners). A high import ratio within a country’s total percentage of energy used indicates an exposure to supply shocks and price spikes in commodities, and risks stemming from political decisions that might restrict trade with energy suppliers. Energy imports, net (% of energy use) World Bank (International Energy Agency and United Nations, Energy Statistics Yearbook) US$ 10,500 and for which no survey data is available are assumed to have made a complete transition to using non-solid fuels as the primary source of domestic energy for cooking and heating. ventilation would lead to over 1.5 million premature deaths per year in 2030. A high percentage score reflects a poor level of energy access across a country demographic. www.worldenergy outlook.org/ databank.worldbank. org/ddp/home.o?Step =12&id=4&CNO=2 NB: The diversity score was worked out using a wide array of countries, not all of which could be included in the final version of the EAPI due to data paucity. This means the target and threshold scores do not equate to 0 and 1 respectively, but 0.09 and 0.88, in line with the performance of the various countries included in the Index relative to all countries analysed (217 in total). No target data available. The low performance distribution threshold is based on the lowest performance value for 2010. The target value is based on the highest performance value for 2010. No specific targets available. The low performance distribution threshold is based on the lowest performance value for 2010. The target value is based on the highest performance value for 2010. States (ECOWAS) committed to providing modern cooking energy to 100% of the rural population (corresponding to more than 300 million people). The UN pledge is “sustainable energy for all”. The EAPI has therefore set a target of less than 5% for this indicator. The target value represents the ideal state of country level electrification rates (a score of <5% being the highest score historically). The low performance distribution threshold is based on the lowest performance values from the 2010 data range. 8. Methodological Addendum The Global Energy Architecture Performance Index Report 2013 61 EAPI Data Limitations – A Global Rallying Call The EAPI team wishes to flag to the international energy community the stark gaps it has found in global energy-related data banks in a bid to raise awareness and take action. The EAPI is missing critical facets of energy system performance due to lack of data. A means to build these data for on-going analysis and improve future iterations of the tool is suggested here. The next version of the Index should focus on building out the indicators that have been missed in this version and that are recorded in table 7. Of special interest would be the creation of an indicator that accurately reflects the impact of the energy sector on a country’s domestic water resources (see Pull-out: The Criticality of Better Understanding the Water/Energy Nexus), an indicator that accounts for the processing of the waste products produced by nuclear energy generation, and an indicator that measures the diversity of free-trade agreements with import counterparts (to describe security of supply). 62 As part of this effort, the EAPI is reaching out to international organizations that may have data sources that could be used to create these indicators and would like to request that readers and partner companies also contribute, wherever possible. Please review table 7 carefully. If you might be able to contribute any data or advice that could go towards the creation of one or more of the indicators listed, please contact [email protected]. Excluded indicators Table 7 shows exactly where there were issues sourcing data or sufficient temporal and geographic coverage, or an indicator’s inclusion was rejected due to contravention of the methodology. The Global Energy Architecture Performance Index Report 2013 8. Methodological Addendum Table 7: Indicators excluded or missing from the EAPI 2013 and rationale Element of the energy triangle Excluded or missing indicators Initial rationale for inclusion in the EAPI Reason for exclusion Wholesale and retail gas prices, by country Energy consumption is strongly correlated with GDP, and lower energy prices are key drivers of economic growth. The EAPI therefore uses this data as an indicator of low energy prices having a positive impact on growth. Data not available on global scale Energy use per unit of industrial output, per capita by country Energy use per unit of industrial output, per capita by country provides an indication of the country-level industrial efficiency of energy use, and whether there is an opportunity to improve energy availability by reducing energy intensity. Data not available on global scale R&D spend (energy specific) by country R&D combines with human capital to drive economic growth and development. A large volume of literature proposes a solid rate of return to R&D investment as multiplied by the share of its percentage in output, though the social rates of return (i.e. of net societal benefit) may sometimes be greater than private rates of return (i.e. to business). Data not available on global scale. Also, where data was available, it was only as direct funding of R&D – other elements including investment in human capital and talent, patent protection and research linked tax benefits could not be accounted for. Energy industry-related employees (per country) With an average permanent staff salary of more than US$ 75,000 globally, the oil and gas industry (and energy industry more generally) provides direct jobs with higher than average pay. The EAPI wished to assess the number of jobs attributable to each country economy and the “employment multiplier effect” that measures the contribution the industry makes via indirect and induced jobs it creates. Data not available on global scale Water impact of energy sector Energy production is, more often than not, highly reliant on the ample provision of water. And the provision of water to households and industry is becoming steadily more energy intensive on a global scale. The EAPI wished to calculate an average water requirement per power generation technology (gallons/megawatt-hour) and then divide against the power generation profile for each country. For more detail, see the pull-out on the criticality of better understanding the water/ energy nexus. Data not available on global scale Toxic waste deposits (incl. radiation waste) by country Nuclear energy in a country’s energy mix is an alternative energy source that avoids fossil fuel related air pollution and reduces CO2 emissions. But nuclear waste, for which no universally accepted processing method exists, emits ionizing radiation, which can be harm both humans and ecological systems. The EAPI wished to account for this by the inclusion of this indicator. Selected countries covered by the International Atomic Energy Agency, but no data on global scale Average building efficiency (Btu per sq. foot-hour potentially) by country Across the globe, residential and commercial buildings are significant users of primary energy (accounting for 10.6% of energy consumption in the US alone in 2011) – this metric would provide an indication of the country-level efficiency of building energy use, and whether there is an opportunity to improve energy availability by reducing energy intensity Data not available on global scale Average building efficiency (Btu per sq. foot-hour potentially) by country Across the globe, residential and commercial buildings are significant users of primary energy (accounting for 10.6% of energy consumption in the US alone in 2011) – this metric would provide an indication of the country-level efficiency of building energy use, and whether there is an opportunity to improve energy availability by reducing energy intensity Data not available on global scale Average electrical grid reserve capacity by country Utilities should retain reserve margins of extra generating power to manage peaks or unanticipated power plant shut downs, protecting against brownouts and blackouts. By comparing reserve margins against national targets, the EAPI could assess a country’s approximate ability to manage the uninterrupted flow of supply. Data not available on global scale Spend on grid infrastructure as % of GDP by country A 3-year rolling average of annual investment in grid infrastructure and IT would likely indicate to some degree the efficiency of the network and renewable integration potential. Denominating this by GDP to provide a percentage share would balance the comparison. Data not available on global scale Diversification of import counterparts by country Having a variety of import counterparts means market risk diversification including exposure to supply shocks, tariffs and price spikes in commodities, and risk stemming from political decisions that might restrict trade with energy suppliers. A diverse import portfolio can mitigate these potential risks. Data not available on global scale Number of energy-specific free trade agreements signed Development of free market fundamentals strengthens an energy sector, enabling energy security through increased trade and growth while ensuring that domestic resources can be developed and extracted. Data not available on global scale Retail electricity prices, by country Economic growth and development Environmental sustainability Energy access and security The Global Energy Architecture Performance Index Report 2013 63 Pull-out: The Criticality of Better Understanding the Water/Energy Nexus Energy production is often highly reliant on the ample provision of water. Climatic changes in rainfall and intensified water use could have profound supply security implications for water-intensive methods of energy generation116 such as hydropower, which currently supplies 17% of global electricity and is a potential carbon-free energy source for much of Sub-Saharan Africa. The provision of energy to households and industry is becoming steadily more water intensive on a global scale (see figure 25). A case for consideration is the Arabian Gulf. With only 1% of the world’s renewable freshwater available for exploitation, countries in this region – collectively large energy producers rely heavily on desalinated seawater, accounting for more than half the world’s desalination capacity.117 Over-abstraction of water for energy production is a critical issue for waterstressed countries. From an economic perspective, water for energy use has historically been cheap, with almost a complete absence of price signals reflecting the true cost implication of abstraction, trade and supply. This has had environmental implications. Overabstraction relating to resource extraction activities and energy production is a critical issue in places where water scarcity is a problem, such as Australia, India and MENA. As the World Energy Council notes in its 2011 report Water for Energy, the local nature of water (and the resulting lack of the ability to match water demands with needs) is a critical concern in a world where “less than ten countries hold 60% of Earth’s available freshwater: Brazil, Russia, the People’s Republic of China, Canada, Indonesia, the United States, India, Colombia, and the Democratic Republic of Congo.” Figure 26: Global water consumption rates for electric power generation plants Source: World Energy Council, 2011; US Department of Energy - National Energy Technology Laboratory (NETL) 2008 120 Water consumption (billion m3) 100 Hydro and geothermal 60 Nuclear Biomass and wastes 40 Thermal 116 McKinsey Global Institute, Resource Revolution: Meeting the world’s energy, materials, food, and water needs, November 2011. 117 Arab Forum for Environment and Development, Water: Sustainable Management of a Scarce Resource, 2010. 64 Wind and solar 80 The Global Energy Architecture Performance Index Report 2013 20 0 2005 2020 2035 2050 8. Methodological Addendum The goal in building the EAPI was to calculate an average water requirement per power generation technology (gallons/ MWh) and then divide against the power generation profile for each country. A final score in terms of an energy system’s impact on a country’s water resources could be derived via comparison with the water scarcity or stress score for that country, as detailed by the Aquastat database or the Environmental Performance Index (Yale) though with the caveat that extraction rates are notoriously difficult to accurately assess due to the local nature of water resources and the lack of data around their location and type. Power generation technology profiling was difficult. As figure 26 shows, there is an enormous difference (in gallon withdrawn or consumed per MWh generated terms) between the different types of power plant technology steam turbine (gas/ coal/biomass), steam turbine (nuclear), combined cycle gas turbine, integrated gasification combined cycle (coal) and, within those, different cooling technologies: closed loop/once through/dry – and this is in the US alone. Figure 27: Water intensity of US electricity generation by plant technology Source: Source: Harvard Energy Technology Innovation Policy Research Group, 2010 *IGCC: integrated gasification combined cycle. 800 Max 700 600 Average gallons/MWh 500 400 Min 300 200 100 Steam turbine (coal, gas, biomass) Vastly different water requirements per technology and lack of precise data on the type of technologies used (or plant size) per country make an aggregate analysis based on the approximate power generation technology profile of a country too speculative, given that these factors are often determined by the location of plant (i.e. next to water or not) and size, not to mention cost restrictions. Though comprehensive data for electricity generation by fuel and technology type for a selection of Advanced Economies was sourced from the International Energy Agency, the EAPI team could not find data for the vast majority of countries in the EAPI 2013. Steam turbine (nuclear) Closed-loop Dry Closed-loop Once-through Dry Closed-loop Once-through Dry Closed-loop Once-through 0 Combined-cycle gas turbine The EAPI team advocates the formation of a database that records the power generation sector’s impact on country water stress. An understanding of the power generation sector’s impact on country water stress is a priority indicator, and the EAPI is significantly weakened by its absence. The solution? This data does not appear to exist in any collated form, but there are many examples from within the energy context that can be looked to for models to assemble and disseminate such information. Institutions such as Carbon Manufacturing for Action118 retain global data on power plant outputs, energy intensity and CO2 emissions. The Joint Organisations Data Initiative119 is IGCC* (coal) an example of a successful data sharing model based on mutual benefit for all parties. Models such as the Global Water Tool for Power Utilities (developed by the World Business Council for Sustainable Development120) could be built as online portals and harnessed to collect the required data from power generators while providing a useful benchmarking tool for businesses. Managing the water/energy nexus is critical to meeting the three imperatives of the energy triangle. The formation of a global database would be highly beneficial and allow for an accurate assessment of the energy sector’s contribution to water stress for a comprehensive set of countries. 118 Carbon Monitoring for Action (CARMA) is a database containing information about the carbon emissions of over 60,000 power plants and 20,000 power companies worldwide. 119 The Joint Organisations Data Initiative (JODI) oil database collates oil market data from its member countries by means of a harmonized questionnaire on 42 key oil data points, and was born out of a perceived lack of transparency relating to critical oil market statistics. 120 The World Business Council for Sustainable Development’s Global Water Tool for Power Utilities enables generators to calculate water consumption, efficiency and intensity metrics for benchmarking and performance improvement, and establishes relative water risks in a company’s portfolio to prioritize action. The Global Energy Architecture Performance Index Report 2013 65 Contributors and Data Partners Contributors Data Partners Expert Panel World Economic Forum – Roberto Bocca, Senior Director, Head of Energy Industries – Espen Mehlum, Associate Director, Head of Knowledge Management and Integration, Energy Industries – Thierry Geiger, Associate Director, Competitiveness Team – Roberto Crotti, Quantitative Economist, Competitiveness Team Project Advisers: Accenture – Arthur Hanna, Managing Director, Energy Industry – James Collins, Senior Manager, Energy Strategy – Mauricio Bermudez-Neubauer, Head of Carbon Markets – Mike Moore, Project Manager, New Energy Architecture, Accenture; seconded to the World Economic Forum – Freddie Darbyshire, Lead Author, Accenture; seconded to the World Economic Forum The World Economic Forum’s Energy Industries Team is pleased to acknowledge and thank the following organizations as its valued Data Partners, without which the realization of the Energy Architecture Performance Index 2013 would not have been feasible: The EAPI was developed with an Expert Panel of advisers, including: 66 France – The International Energy Agency, Paris – Dr Fatih Birol, Chief Economist and Director, Global Energy Economics Directorate – Pawel Olejarnik, Senior Energy Analyst, Global Energy Economics Directorate United Kingdom – Bloomberg New Energy Finance, London – Michael Liebreich, Chief Executive – William Young, Chief of Staff The Global Energy Architecture Performance Index Report 2013 – Manpreet Anand, Senior Policy Adviser, Chevron Corporation – Juergen Arnold, Chief Technology Officer, ESSN, EMEA, HewlettPackard Company – Gabriel Barta, Head of Technical Coordination, International Electrotechnical Commission – Morgan Bazilian, Deputy Director, Joint Institute for Strategic Energy Analysis (JISEA), US National Renewable Energy Laboratory - NREL – Mauricio Bermudez Neubauer, Head of Carbon Markets, Accenture – Suman Bery, Chief Economist, Royal Dutch Shell – Lin Boqiang, Director, China Center for Energy Economics Research, Xiamen University – Daniel Esty, Commissioner, Connecticut Department of Energy and Environmental Protection – Arthur Hanna, Managing Director, Energy Industry, Accenture – Ishwar Hegde, Chief Economist, Suzlon Energy – Jeremy Leggett, Chairman, Solarcentury – Michael Liebreich, Chief Executive, Bloomberg New Energy Finance – Patrick Nussbaumer, Industrial Development Officer, United Nations Industrial Development Organization – Paweł Olejarnik, Senior Energy Analyst, International Energy Agency – Kwok Shum, Professor of Sustainability, Akio Morita School of Business, Anaheim University – Jim Skea, Research Director, UK Energy Research Centre – Thomas Sterner, Chief Economist, Environmental Defense Fund – Alyson Warhurst, Chief Executive Officer and Founder, Maplecroft The World Economic Forum is an independent international organization committed to improving the state of the world by engaging business, political, academic and other leaders of society to shape global, regional and industry agendas. Incorporated as a not-for-profit foundation in 1971 and headquartered in Geneva, Switzerland, the Forum is tied to no political, partisan or national interests. World Economic Forum 91–93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0) 22 869 1212 Fax: +41 (0) 22 786 2744 [email protected] www.weforum.org