While Americans witnessed three straight presidential debates with little meaningful discussion about climate change, the rest of the world has been busy chipping away at climate change issues one at a time. In fact, just in the last month we saw four major developments: (1) Canada implemented a carbon tax; (2) the Paris climate agreement officially went into effect; (3) the Carbon Offset and Reduction Scheme for International Aviation (“CORSIA”) was signed by 191 countries requiring airline operators to purchase carbon offsets; and (4) 197 countries agreed to phase out hydrofluorocarbons (“HFCs”), an extremely potent greenhouse gas used in air conditioners.
The culmination of these recent developments will be in the International Energy Agency’s (“IEA”) upcoming World Energy Outlook (“WEO”) report, which will be released in November. According to the IEA, the 2016 WEO report will have a “major focus” on renewables, and is expected to significantly increase renewable energy growth projections compared to prior reports. As one of the most influential and authoritative publications in the global energy world, the WEO report will likely have a significant impact on clean energy investment and provide a confidence boost to the new energy economy.
IEA has been routinely criticized by the renewable energy industry for underestimating wind and solar potential. For example, the 2010 WEO report projected that solar PV capacity would reach 180 GW by 2024, when in fact that target was achieved in 2015 – nearly a decade early. Installed wind capacity in 2010 exceeded the WEO 2002 projection by 260 percent. The list goes on and on.
While some of that criticism is justified, it isn’t entirely IEA’s fault. In part, the underestimations are due to the fact that IEA’s projections are based on government policy, which is often conservative and protective of the status quo. And it doesn’t help that the United States has never truly had a federal energy policy. Each state retains control of its power generation portfolio and regulatory mechanisms, leading to a complex patchwork of inconsistent policies that make it difficult for international observers to understand long-term policy trends. IEA would need a small army of researchers to account for every country, state, political subdivision, and technology in the world. Instead, it focuses on broad aggregate assumptions.
IEA claims its 2016 WEO report will be different. But why the sudden change of heart? One answer could be that in 2015, IEA appointed its Chief Economist, Fatih Birol, as the new Executive Director. Dr. Birol joined IEA 20 years ago as a junior analyst and has worked his way to the top. As a data-driven leader who has been in the energy analyst weeds for decades, he brings a unique on-the-ground perspective that allows him to see the current trends for what they’re worth.
Another explanation could be the recent wave of national and international agreements to curb greenhouse gas emissions. The future for renewables that will be spelled out in the 2016 WEO report can be traced back to the Environmental Protection Agency’s Clean Power Plan rule, which signaled that the U.S. is now ready to take climate change seriously, setting off a chain of events that culminated in the Paris Agreement. With international recognition of these issues, more countries and investors are now confident enough to turn words into action.
Forecasts influence future investments. For years, while independent studies have predicted the significant growth of renewable energy, the IEA has remained consistently pessimistic about wind and solar. In October 2016, the World Energy Council estimated that solar and wind will account for approximately 60 percent of all power generation by 2060. If the historically conservative IEA echoes the World Energy Council in its November WEO report, it could be a tipping point for governments and investors waiting on the sidelines of the new energy economy.