Building consensus for Ireland’s energy transition

Neil O’Carroll, Chairman of the Irish Branch of the Energy Institute, considers the role of the Irish oil and gas industry in the transition to sustainable energy future.

The emerging détente between the US and China on the need for a meaningful response to the existential threat of climate change is a hopeful precursor to December’s Conference of the Parties (COP 21) to take place under the auspices of the UN in Paris.

Real progress was always going to be dependent on the major emitters and on their ability to align interests, notwithstanding the EU’s early commitment to lead by example. The US-China détente is a bold step in that direction.

Another positive indicator is the International Energy Agency (IEA) view that an early peak in global energy-related emissions is possible utilising only proven technologies and policies, and without diminishing the economic and development prospects of any region. Intended as a bridge to further action, among the measures to constrain the growth of emissions at an early date are:

•   increasing energy efficiency in the industry, buildings and transport sectors;

•   reducing the use of the least-efficient coal-fired power plants and banning their construction; and

•   increasing investment in renewable energy technologies in the power sector from $270 billion in 2014 to $400 billion in 2030.

At first sight these measures seem rather pedestrian and in line with actions already underway. Nevertheless, pursued with the ambition envisaged by the IEA they can have big repercussions.

As we have seen in Europe, growing our economies while reducing emissions has short, long run and sometimes, unexpected consequences. In Germany, for example, despite its ‘Energiewende’ (energy transition strategy) emissions rose as power producers reacted to the pressures of energy policies and global developments. EoN, a leading German utility, split into a renewables-only utility and a traditional fossil fuel utility, and Shell has taken over British Gas. Of these consequences, the first was unintended, the second was unimaginable five years ago and the third was a surprise; all three illustrate the strength of the forces at play.

Cheap American coal, relatively expensive gas and low carbon prices in the European Union’s Emissions Trading Scheme (EU-ETS) caused emissions to surge in Germany. The German government’s support for renewables and the intensification of competition in a low growth and restructured electricity market caused wholesale electricity prices to plummet cutting the profitability of the fossil fuel generators. EoN has therefore, according to some commentators, split into a profitable renewables company and a loss-making fossil fuel generator. Shell now has greater reserves in gas than in oil.

How have such forces affected Ireland? Are there surprises in store for us? What would application of the measures proposed by the IEA hold for us? In what ways is Ireland subject to – or free from – continental and global pressures? This is the stuff of the Energy White Paper now in preparation.

In Ireland’s case, “reducing the use of the least efficient coal-fired plants” has to be addressed at EU level through the reform of the EU-ETS (carbon price). Within the EU, market developments ran ahead of policy as slack demand and over-allocation of allowances in the EU-ETS brought about a collapse of the carbon price. This has weakened what should have been a strong price signal for energy producers to switch away from the most carbon intensive fossil fuels.

The EU 2020 targets bind us to progress in energy efficiency, in renewable energy deployment and in greenhouse gas reductions. While to date, we have seen dramatic improvements in the energy efficiency of new cars and buildings and renewable energy deployment, our emissions reduction target appears to be out of reach with current measures. Further efforts are required to reach our 2020 targets that will put us on track to achieve the new requirements for 2030.

We have a lot to get our heads around if we are to build consensus on energy policy. The Energy Institute has, with the support of a range of stakeholders, committed itself to reaching out to society, informing and contributing to a wider appreciation of the forces at play in aspiring to a sustainable energy future. The oil and gas industry has a central role in facilitating Ireland’s energy transition.