Even as the highly-anticipated United Nations Climate Change Conference is about to begin in Copenhagen next week, two energy experts are already warning against expecting huge strides to be made at the global warming talks.
I think it does seem that Copenhagen is being cast more and more as a process and not as a conclusion, to not have expectations that there's going to be an agreement there. I think there's still a lot of tough negotiating that's going ahead and I think it's probably harder to do it during a time of economic recession, says Daniel Yergin, Chairman of IHS Cambridge Energy Research Associates and Pulitzer-prize winning author of 'The Prize: The Epic Quest for Oil, Money and Power'.
Likewise, Harvard Kennedy School Professor Bill Hogan, who is also the Research Director of the Harvard Electricity Policy Group, thinks declared success but little else will emerge from the summit. Speaking in Singapore ahead of the summit, he said: Perhaps next year maybe in Mexico, when the next round of the COP (Conference of the Parties) meets in Mexico, some stronger agreement would take place. But I think it's too late for Copenhagen. Those comments though were made shortly before the White House stated that President Barack Obama will pledge to cut greenhouse gas emissions in the US in several stages, beginning with a 17 per cent cut by 2020.
The process is working extremely well and I think there's no question that the United States is committed to doing something, Hogan told INSEAD Knowledge on the sidelines of the Singapore Electricity Roundtable, held in conjunction with Singapore International Energy Week (SIEW). I think the attitude that's been expressed by many other countries, particularly China, is very much pointing in the direction of some agreement. I think we have reached the stage now where it's not a matter of principle; I think we're just negotiating and that's a very good sign.
We've never seen such an emphasis on energy innovation all across the energy spectrum that we see today, Yergin said during his keynote address at the Singapore conference last month. We do know that unprecedented efforts are going into renewables and alternatives. I think wind probably shouldn't be called an alternative anymore: it's another form of electricity generation. Solar has an ultimate logic but it's behind in scale and it needs improvements in cost. The hot thing today is how batteries and electric cars have come to the fore.
Yergin in fact believes we have moved from an age of oil to a century of energy innovation, adding that the intense push for innovation is being driven by two powerful forces -- the quest for clean energy and the need to provide energy for economic growth.
He also believes the most important energy innovation of this decade to be the development of natural gas extracted from shale. Though it's been known to be a resource for many years, he says the technology has only been recently liberated in the US.
But according to Hogan, innovation can also upset the natural order of things. He says the discovery of unconventional shale gas, which even the experts could not have predicted, has changed the energy mix in the US. One of the biggest impacts on the LNG (liquefied natural gas) market came because of the massive expansion of the production of natural gas from shale ... So the United States had been expected to be a big importer of LNG, and now it's probably not going to happen.
Nevertheless he believes the benefits of innovative technology far outweigh its propensity to be unpredictable, as innovation will be a key driver for change in the green agenda, an agenda that also encompasses the electricity sector -- also part of his ongoing research at Harvard.
As electricity is a major emitter of CO2, Hogan believes restructuring the electricity markets and implementing a 'smart grid' system will be important in terms of curbing emissions. So having efficient markets, having clear price signals, having the prices reflect the reality, as opposed to something which is masked through the effects of regulation, would be very important in going forward.
There's a lot of talk for example about building smart grids, and a smart grid means many things to many people: like intelligence and information in the grid; smart meters that can keep track of consumption; smart devices that can use that information. But if you have smart grids and you have dumb prices, you're not going to give people the incentive to take advantage of the opportunities that are there. So I think it's critical that we improve the quality of the pricing models that we're using.
Another plausible way of curbing CO2 emissions, Hogan says, is by tackling the carbon itself. I think the more relevant question is that can we capture the carbon and sequester it and deal with that kind of problem ... in a world in which we do use a lot of coal. And I think that's one of the game changers that we need, and exactly how well it's going to work and how successful it's going to be and competitive is an open question.
He is also in favour of putting a price on carbon to motivate people to become more energy efficient. When there's a price on carbon, not just in Europe but in the United States and in China and in Singapore, that's going to provide a very strong incentive for innovation and new green technologies that will transform new businesses and what happens particularly in the electricity sector.
The energy market, however, may be a little less daunting. Yergin explains: The thing about energy efficiency, when you look at it in all its pieces, it's not very dramatic, it doesn't sound very dramatic. The cumulative impact is dramatic â€¦ It's how companies organise themselves, what kind of investments (they) make. And it does -- and I think that's a key point -- it really does require investment.
We have not yet ever seen an energy-efficient refinery, but it's a process and shaped by pricing, by policy, by mandate to regulation, by security, by the pace of technological innovation. Our attitudes and values are very important part of it, and of course climate.
With all eyes on Copenhagen next week, Yergin hopes that any climate change initiatives coming out of the UN climate talks, and thereafter, will reflect a spirit of cooperation and avoid becoming confrontational and disruptive to trade. Because, otherwise, these could have some very serious unintended economic and political consequences.
While the US will propose a tentative target of 17 per cent reduction in carbon emissions by 2020 over 2005 levels and 83 per cent by 2050, China says it will propose a reduction of 40-45 per cent in carbon intensity by 2020.
Daniel Yergin and Bill Hogan were in Singapore for International Energy Week which was held in mid-November. In the lead up to Copenhagen, the Singapore government has announced it is ready to cut its carbon emissions by 16 per cent by 2020 -- if there is a legally-binding global deal.