IEA play down biofuel role : IEA warns carbon price must double

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IEA warns carbon price must double

By Carola Hoyos and Ed Crooks in London

Published: November 10 2009 20:29 | Last updated: November 10 2009 20:29

The International Energy Agency has warned that the price of carbon credits will have to more than double from the levels they now trade at in Europe to make high-tech solutions to climate change economically attractive.

In its annual World Energy Outlook report released on Tuesday, the rich countries’ watchdog also warns that the world’s use of fossil fuels – coal, oil and natural gas – will have to peak by the early 2020s.

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Fatih Birol, the IEA’s chief economist, argues the world needs a “revolution” in the energy and vehicle industries.

“We need a deal in Copenhagen [at the climate talks]. We need a signal for the energy industry. Without that, nothing will move,” he says.

In industrialised countries the price of a permit to emit a tonne of carbon dioxide will need to reach $50 by 2020 and $110 by 2030. In developing countries the price would need to reach $30 a tonne by 2020 and $50 by 2030.

Carbon permits now trade at $21 a tonne in the European Union. In the US a carbon trading scheme is still being negotiated. The Senate, which is unlikely to pass any bill before next year, has set $48 as the maximum that carbon prices would be allowed to rise to by 2020. By 2030 that ceiling increases to about $90.

But the IEA argues that important technology, such as carbon capture and storage, and widespread use of electric and hybrid cars would be economic only if a high price for carbon penalised those extracting and using dirtier energy sources, such as coal and petrol.

Mr Birol says the IEA’s recommendation “is much higher than the current EU price and higher than the discussions taking place in the US and elsewhere. But to encourage the investment and make the substantial change that is necessary, we need this price”.

Better energy efficiency, especially in power use, rapid growth in renewable energy, and increased use of nuclear power will also be critical to move the world away from fossil fuels, the IEA believes. Second-generation biofuel, which uses plant waste rather than crops, will only make a small contribution, it says.

The greatest responsibility to reduce emissions and help others to do so lies with the US, the IEA says. But China has the largest potential to make an impact. If it meets its own targets, China will be responsible for more than a quarter of the emissions reductions the IEA says are needed to avoid the worst climate change risk.

The IEA warns that a quick rebound in global economic growth could again lead to an energy supply crunch similar to the one that helped tip the world into recession in July last year, as supply is constrained by political barriers and the recent drop in investment.

Mr Birol is optimistic that the world will pass energy legislation that will keep atmospheric concentrations of greenhouse gases at 450 parts per million – the level that scientists believe gives the world a 50 per cent chance of keeping the increase in global temperatures within limits thought to be safe.

http://www.ft.com/cms/s/0/ab9e8ffc-ce2f-11de-a1ea-00144feabdc0.html

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