Jane: [00:00:03] Hello and welcome to the LSEG Sustainable Growth podcast, where we talk to leading experts about sustainability and finance. I'm Jane Goodland, and this week we're talking to Tim Gould, Chief Energy Economist at the International Energy Agency, which is the global energy authority, advising governments around the world. I'm really excited to talk to Tim today as he's a mine of information. He provides strategic advice on energy economics across a wide range of IEA activities. He co-leads the World Energy Outlook, and he oversees the agency's work on investment and finance, including the World Energy Investment Report. Eager as I am, to talk to Tim. I do want to remind you to follow us if you're not already doing so. And don't forget to rate us on Spotify, Apple Podcasts, or any other platform you use. Right, let's hear from Tim.
Jane: [00:00:52] Tim, thank you very much for joining us on the show. We're delighted to have you.
Tim: [00:00:55] Well, thanks very much, Jane. It's a pleasure to be with you.
Jane: [00:00:57] Great. So, I've got lots of good questions for you. So, let's dive straight in. Now, I know that the IEA is celebrating its 50th birthday this year. Can you just tell us a bit more about what the agency does?
Tim: [00:01:10] So, as you say, 50 years old, we were set up in the aftermath of the first oil shock in 1973, really, with an energy security mandate, looking first and foremost at the way in which countries that were, at the time, the largest consumers of oil in the world could respond to energy security risks, first and foremost in oil. And over the last 50 years, that mandate has broadened considerably. So, on the security side, it's not just oil, but it's also other fuels, and particularly now, electricity, which is becoming such an important part of our modern lives. And then extending into other areas like clean energy supply chains, critical minerals and so on. But there's a broader context, of course, for that energy security discussion, because you cannot separate out, in our view, security from affordability, but also sustainability. So, you have to think in a very integrated way about the way in which we can make that transition to a net zero energy system, but in a secure way and in a way that doesn't put too much of a burden on people, but also allows them to take advantage of the many opportunities that come with this transition to a new clean energy economy.
Jane: [00:02:22] One of the IEA’s flagship publications is the World Energy Outlook, which you, of course, co-lead. That's updated every single year. What were the main insights from the 2023 edition?
Tim: [00:02:35] So what we looked at in particular in last year's outlook and what we'll look at again, is where are we on that journey to a different kind of system, a more sustainable but also a safer energy system, because we've had a lot of evidence in the last few years of the frailties of the vulnerabilities of the system that we have. We've had those extreme spikes in fossil fuel prices during the global energy crisis, which left many consumers around the world feeling the bruises. And then the lasting solutions to some of those strains in energy markets is to move ahead with clean energy transitions. And we have seen quite a noticeable pickup in deployment of a wide range of technologies. So more than 80% of the new generation investments being made in the power sector are going to renewables. We've had a considerable pickup in the sales of electric cars. Only a few years ago, back in 2020, around one in 20 cars sold worldwide was electric. Now we're up around 1 in 4, 1 in 5. And in some countries, notably in China, the latest numbers are quite remarkable. You see, around half of the new car sales in China this year are electric. And China was another big focus for our work because China's been driving all sorts of things in energy markets for the last decades. And we believe that China is changing. And that is not just a slightly slower pace of economic growth, but also a different quality of growth.
Tim: [00:04:08] And we're reaching the end of that very infrastructure heavy, energy intensive period of Chinese growth. And we're moving to something different. And that has all sorts of implications for Energy markets. And one of the most striking findings that we had from last year's outlook was that even with today's policy settings. So not something that is yet consistent with the Paris Agreement or our climate goals, but with the world we are in today, we can see that this is the last decade of growth for fossil fuel demand and indeed for each of the fossil fuels. So, by 2030 in our in our outlook from last year, we see a flattening or a peak in demand for oil for natural gas and coal. And what that also means is that clean energy, including efficiency investments, but that's taking a lot more of the strain when it comes to meeting our increasing demand for energy services. So, we're seeing the start of something extremely important in energy markets. You can look back 200 years to the start of the Industrial revolution. And each decade we've seen increases in fossil fuel use and increases in emissions. We are starting to see the emergence of a new type of energy economy when continued economic growth is no longer dependent on continued growth in fossil fuel demand. And I think, we are not yet on track for the Paris Agreement goals, but we are nonetheless on the verge of a really important moment in energy history.
Jane: [00:05:33] Well, it sounds really exciting, Tim. And certainly, it does start to feel a bit different in terms of the reports that we're seeing coming out from the IEA at the moment. So, I know you can't say too much because we're just ahead of you publishing the 2024 World Energy Outlook, but can you share at least some of the high level themes that we should be looking out for in that report?
Tim: [00:05:51] So one of the really interesting things that we see when we look at today's energy world is that the conversation over the last few years has been dominated by sort of shortages, where we've seen price spikes, we've seen particularly for natural gas. And but that's also fed through into higher electricity prices in many parts of the world. So that's been the dominant paradigm for many people. When they think about energy, they think about high prices. They think about the pain that that causes them as consumers. We are, in our view, moving into a different phase in the energy sector, a different energy world in many ways. Because when we look at oil markets, when we look at gas markets, we do see a lot of new supply coming to market. And we see demand growth slowing. And so that produces for us downward pressure in prices. When we look at clean energy then there is a lot of manufacturing capacity out there for solar panels, for wind turbines, for electrolysers, for all sorts of other bits of the clean energy picture.
Tim: [00:06:47] We, in the case of solar panels, for example, we're installing something like 500GW of new solar last year. A lot of that in China. But the world's capacity to manufacture solar panels is well over 1000GW. So, there's a lot of room for us to accelerate, and there's a lot of relatively cost effective options out there for countries looking to build a new type of energy system. So, I think one of the key things that we want to talk about in the new outlook is how do country's energy choices look in this world where you might see downward pressure on oil and gas prices, but you're also going to see relatively abundant and cost effective and cheap clean energy technologies on the market. How do countries think about the right way to make those policy choices? How does the private sector view the investment opportunities and risks in such a different environment? So, I think that's going to be really the key element of backdrop for our new outlook as well.
Jane: [00:07:44] Well, I look forward to reading it when it's published. Now you mentioned clean energy investments. Let's drill down on that one a bit more, because I know that we're now reaching a point where effectively, those types of investments are overtaking the investments into fossil fuels globally. That’s a change from the past. Let's drill down a bit more into what type of investments are happening in clean energy and where is that happening.
Tim: [00:08:04] So you're completely right. We are in a different world when you come to capital flows going into the energy sector than we were a few years ago. So, if we cast our mind back to say, 2018, 2019, and at the time, there was roughly $2 trillion worth of investment going into the energy sector around the world, and that was split roughly 50:50 between investments in fossil fuel supply and in a range of clean energy technologies. And we don't just mean renewables there. We mean all sorts of low emissions power. So, renewables plus nuclear, we're talking about grids, we're talking about storage. We're talking about investments on the demand side in efficiency improvements and elements of electrification. And also sort of clean fuels, low emission fuels like biofuels and low emission hydrogen, CCUS and so on. So, if you put all of that together and that was around $1 trillion. Where we are today, we believe that this year we're likely to see around $3 trillion worth of investments going into the energy sector. So up from two, five years ago to three, and pretty much all of the increase has come from clean energy. So, for every dollar being spent on fossil fuel supply, now there's $2 being spent somewhere on elements that support clean energy transitions. So, there's an important element of momentum there. What's doing particularly well? Solar is doing extraordinarily well in many parts of the world. In fact, one very striking finding from our most recent work is that the amount of capital going now into new solar projects is greater than the amount going into all of the other generation technologies combined.
Tim: [00:09:38] So gas, coal, but also the other renewable or low emissions technologies nuclear, wind, hydro, everything. That is important. It's a great success story for solar. It also brings challenges which we have to recognise on the integration side, because you need a lot of flexibility in the operation of your electricity system in order to accommodate that. And we've been particularly concerned that not enough money is going into grids, into networks, into that element of the infrastructure, because you need a very coordinated approach to make sure that one element of the picture doesn't run too far ahead of others. So, we've been emphasising very strongly the need for more investments in electricity networks. And indeed, they are starting to pick up in some parts of the world. But that's still a bottleneck in many others. And then on the demand side we are worried that not enough is being done on the efficiency side, but elements of that electrification picture are looking quite robust, particularly that increase in sales of electric cars and other elements of electric mobility in different parts of the world. Clean fuels is lagging behind and but there are some signs of life there as well. And there's a lot of new projects coming through for some low emissions fuels for CCUS in some markets and, but also a lot of interest in what biofuels can bring.
Tim: [00:10:52] Now, where are those taking place? And that's an absolutely crucial part of this picture, because there is a strong imbalance that we see in that clean energy investment landscape. Pretty much all of the increase that I mentioned has come from advanced economies from Europe, from the US to an extent from Japan and China. When we look elsewhere, when we look at other developing economies there are some bright spots. Brazil, India I would highlight in particular, but by and large we haven't seen anything like the same pickup. And why is that a worry for us? Because as many people will immediately understand, those are the countries that will see the biggest increase in demand for energy services as they grow, as incomes rise, as they put in place all sorts of elements of national infrastructure. And that needs to be met sustainably. So, we need to match the dynamics of that broader energy system with the dynamics of clean energy investment flows. And at the moment when the private sector in particular looks at opportunities in those markets, in many cases, they don't yet see the right balance of risk and return to make those investments worthwhile. So, we're working a lot with the multilateral development banks, with other development partners, but also particularly with the countries in different parts of the world, to try and get that policy mix right in ways that would scale up those capital flows.
Jane: [00:12:08] Yeah, it comes back to where we started, I suppose, isn't it, in terms of sustainable energy, but also access to electricity in an affordable way. And there's many countries around the world who still don't have the opportunity to be connected to an electricity grid. So, we can't forget about those countries. And it's really vital that we do continue to focus on that. Now we're seeing a slowdown in oil and gas demand. And of course that could have downward pressure on prices there. What could that mean for future clean energy investment trends.
Tim: [00:12:37] Well, in a way, some of the slowdown that we see in oil demand, for example, a slowdown in oil demand growth is precisely related to the scale up of clean energy investment that we've had up until now. So, China's an excellent example. So, China's been in oil markets, has been responsible for more than half of the growth in oil demand over the last ten years. But right now, the picture in China is changing quite, quite strongly. And part of that has to do with broader macro factors. But a lot of it also has to do with the fact of the scale at which electric cars are increasing their role in China. So, China's oil demand last year increased by about 1.5 million barrels a day. Our latest assessment is this year that will go from 1.5 million barrels a day of growth in China to less than 200,000 barrels a day of growth this year. And gasoline markets are feeling that quite strongly. So, in a sense the rise of clean energy investment. And you can see that also for gas demand in some countries, because of the increasing volume of renewables coming through in the power sector, it is having an effect.
Tim: [00:13:39] Now you raise an extremely good question about what do the incentives, what are the economic drivers for those kinds of clean energy investments look like in a world where oil may be cheaper than it has been, and gas likewise. And that is a very good question. And the answer really hinges also on the policy signals that governments send. Are they going to be doubling down on that vision of transition, or are we going to see some hesitation in moving forward? And then likewise at the consumer level are we going to see a different set of calculations about installing a heat pump or moving to electric mobility, if people see that the pump prices are different. So, in our view, there's an important role here for policy to keep that momentum going, because the underlying costs are of those of those clean energy investments, in our view, remain attractive, particularly if you factor in not just the upfront element, but also the lower operating costs of many of those projects over time.
Jane: [00:14:35] So picking up on this policy angle and the importance of those policy signals. Thinking about this in the context of the Paris Agreement and effectively, what parties around the world have signed up to do in terms of the ambition around one and a half degrees. I know that the IEA publishes a net zero roadmap or certainly did so in 2021. About the feasibility of reaching those Paris goals. Now, I know a lot's changed since 2021, in the energy sector. So where does the IEA stand now in terms of achieving net zero emissions by 2050? Is it still in reach and if so, what needs to happen.
Tim: [00:15:10] So we can still see a narrow but feasible pathway to achieving that? It is incredibly ambitious. You require a wholesale transformation not just of the electricity generation sector, but the end use sectors as well. So, buildings, transport, industry and some of those transitions are well underway, but some particularly in the heavy industrial sectors or long distance transportation, we are just putting together the roadmap for how those kinds of changes can occur and trying to get the costs of the necessary technologies down. So, we can see how it happens. And in a way, the developments since 2021 are encouraging in that respect, because we have seen that that significant expansion in capital flows going to clean energy. But we need to be moving much faster over a much wider range of technologies and frankly, over a much wider range of geographies in order to get us on track. In some ways the current environment is helpful, but in other ways it is a bit more difficult because we have higher interest rates, borrowing costs. The cost of capital for clean energy projects is a big obstacle in many developing economies, but not only in developing economies. And in some ways, the more fractured international environment, the difficult geopolitical environment we're in, it complicates that further because it makes the cooperation that would be necessary to get on that journey to net zero. It makes that obviously a more complicated process.
Jane: [00:16:30] Yeah, it's quite interesting, isn't it, because earlier it feels really positive about the trends we're seeing in clean energy investments. But actually, when you take that down to an emissions level, perhaps it's clear that there's so much more that needs to be done to achieve those Paris goals. I'm going to sneak in one last question if I can. And it comes to it comes to the people side of this whole equation. And some people call that just transition. Other people have different names for it. But I know the IEA is thinking about people centred clean energy transition. Can you tell me a bit more about the program and what the purpose of it is, please?
Tim: [00:17:03] So we believe that this is not a technical process of moving to a cleaner energy system. This is one that will change many aspects of our energy economy, but also it would have implications across the broader economy. It would have social implications, has implications for skills, for jobs, for worker protection. So, you need to make sure that you you're not just talking to energy and climate people about energy transitions. You need to be talking across many areas of government, and you need to be talking with a much wider range of stakeholders. So, including employer groups, but also trade unions and elements, of course, of civil society. Because this will not move at speed unless people see that it works for them. And so, you need to build in to your approaches to transition, elements of social inclusion and fairness. Because in the end, if people can see this as an opportunity that works, an opportunity that delivers cleaner air, a decent work environment, then of course, that will that will galvanise political processes and it will galvanise also the investments required. So that's the reason why we try and take a broad lens when we look at this, and we're engaging policymakers in discussions on what sort of policy design can help to make that process as broad and inclusive as possible.
Tim: [00:18:18] And we have different elements of interaction and global commissions and all sorts of other things that try and allow us to move that discussion forward. But I think just from my perspective, working on the World Energy Outlook, maybe ten years ago, a lot of the questions that we were being asked by governments, our main stakeholders, but also by the broader energy world, they were more techno economic in nature. So how can we do this most effectively? How can we do it most cheaply? Many of the questions we're being asked now are how does this work politically. How does it work socially? How does it work for people? What are the implications for affordability? How can we get more cost effective, clean technologies into the mix in ways that make sense for the population? So, I think that that really has to be the focus of a workable process of change. And that's why it's a very big priority for us here at the IEA.
Jane: [00:19:05] Fascinating stuff. Tim, thanks so much. I've learned so much again from talking to you. We really do appreciate you coming on the show. Thank you so much. Indeed. And the listeners need to look out for the new World Energy Outlook 2024.
Tim: [00:19:19] Thanks so much, Jane. A great pleasure to join.
Jane: [00:19:22] Well, that's it for this episode. I do hope you enjoyed that conversation with Tim. If you're interested in the World Energy Outlook, then you can find it on the IEA website.. If you've got any questions, comments or someone you'd like us to talk to then do get in touch with us by email at fmt@lseg.com. That's all from me but watch out for next year. That's all from me. But watch out for the next episode very soon.
