At the ONS conference, Equinor organized a panel discussion on the possibility of the world reaching the 1.5 degree threshold. The company’s chief economist made it clear that it is not realistic at all.
“In any case, it is impossible to stay under the limit. It’s fundamentally impossible if we don’t collapse the world economy,” says Eirik Wærness, Chief Economist at Equinor, from the stage.
At the same time, he ends the discussion by declaring himself an optimist about the world’s ability to address climate change through the energy transition.
“There are many good solutions on the way, so an economist must be allowed to be optimistic,” says Wærness.
Wærness believes in 2.2 degrees
When EnergiWatch Norway later spoke to the chief economist, I asked him to elaborate on the apparent contrast between his bombastic denial that the 1.5 degree target is possible and his glowing optimism that things are moving in the right direction.
“What we see is that there is a lot happening in the energy transition and we are becoming more and more energy efficient. To think that the world is now most likely heading towards a 2.2 degree scenario is much more optimistic than we thought a few years ago,” Wærness tells EnergiWatch Norway.
He points out that Equinor’ aims to meet the ambitions of the Paris Agreement, but that he and the company believe that the so-called Walls scenario in the company’s Energy Perspectives report is the most realistic. The second scenario is the Bridges. In this scenario, the 1.5 degree target is achieved. Wærness confirms that it is the Walls scenario and 2.2 degrees that Equinor now believes can be achieved, even though there is currently a lot of unrest in the world and great uncertainty about, among other things, the upcoming US presidency. choice.
“Yes, the scenario we have, which goes to 2050, if you extend it, is consistent with about 2.2 degrees. It’s in a situation where we’re also seeing protectionism, we’re seeing conflicts, but there’s a lot going on on the technology side and the deflationary act has had a very positive impact. So in that respect, we’re heading in the right direction here,” says Wærness.
At the same time, he reiterates that the 1.5 degree target is unrealistic.
“The belief that it is possible to double the world economy in 2050 without using more primary energy than today is an optimistic outcome,” says Wærness.
On stage, he said that even going above 1.5 degrees and then going down again is not realistic. Carbon capture and storage (CCS) can play an important role here, but the volumes are simply too large.
“No, some people think so. Because we can’t stay below that, we go into overshoot. If you want to get back to 1.5, you have to capture and store a lot of carbon,” says Wærness.
Wærness believes this would involve too many billions of tonnes of CO2 surprising, with uncertain effects on temperature and climate, and that it would be difficult to achieve in practice.
Economic realities
He supports his arguments with economic analysis.
You are an economist and economists should trust the numbers, but I have also noticed that there are several economists who say more like you. Is it easier for economists to say no, “no way,” than for other professions?
“Yes, it is. What we’re looking at is how demand continues to shift, how the composition of demand is met by supply, how slowly it seems to be heading, for example, to get a surplus of renewable energy that can be used to produce hydrogen , how It’s hard to imagine that we can use hydrogen in many applications, etc. That’s the advantage we economists have,” says Wærness.
Even if something is difficult and takes time, many important climate contributions are relatively simple. Wærness singles out coal, which he believes should be able to do something significant relatively quickly.
“Technologically, it’s very easy to take coal out of the electricity mix, but not so easy to take it out of cement and steel,” says Wærness.
The challenge is that replacing coal, the most polluting energy source, with a renewable alternative is not as fast. Wærness highlights gas as a viable alternative.
“It depends mainly on the big countries that currently use their own coal. They must be given competitive conditions for the alternative, which is gas, which they often have to import. So it may be difficult from an economic point of view, but from a technological point of view it is very simple,” says Wærness.
Renewable energy struggles with market design
During the discussion, Wærness pointed out that there are market challenges in the renewable energy industry. He pointed out that large variations and frequent negative electricity prices create problems that need to be solved by the energy transition.
Is this the biggest roadblock to renewable energy right now?
“Globally, the biggest bottleneck for the renewables economy is access to projects that would send investment to emerging economies, where electricity consumption will increase. In the West, electricity consumption should increase slightly, but mainly only current production needs to be replaced with something carbon-free,” says Wærness.
At the same time, the sometimes dysfunctional electricity market is a problem that needs to be solved.
“What we’ve seen in the West is that when we do this quickly, we fight a market organization that means we end up with lower prices when the wind is blowing and the sun is shining. Then we lack the technology or the size of the batteries and they lack the framework conditions around them to be paid enough to maintain standby capacity,” says Wærness.
“It can be solved, but until it is solved, it is a bad investment signal for those who want to build the next wind farm in such a country, under such a regime,” says Wærness.
Batteries are coming strong in Europe, and Norway has flexible, controllable hydropower. But it’s still not enough. Norwegian hydropower does not have the capacity to balance the whole of Europe, and batteries are best suited for short-term variations of a few hours. It may therefore be necessary to resort to non-renewable balancing power.
Gas power as balancing power requires better market design
Gas-based power is relatively cheap to develop, but the fuel must be purchased and either carbon credits must be paid for emissions or expensive CCS must be installed. This means that both investment and operating costs increase quite a bit, and these costs must be recovered through high enough electricity prices when there are gas-fired plants with or without CCS to ensure sufficient production when it is little sun and wind.
“From a political point of view, it is hard to imagine that you would accept very high electricity prices during the hours when you are very dependent on gas power. So you have to have a market design where you get support to build the balancing power with gas,” says Wærness.
The challenge here is that such gas-fired power plants are only needed for a variable number of hours per year. Therefore, there are much fewer hours in which investments can be recovered, as the electricity market works today.
Is the market design good enough for Equinor to invest in more gas power?
“You can do that in some countries, and gas-fired power is used today, but a lot of it is used for baseload and not for this kind of fluctuating generation. It is hard to imagine large-scale load fluctuations now given the current market design,” says Wærness.
Is this something you are working on with the EU?
“Yes, I hope we are, because we should,” says Wærness.
English edition: Simon Øst Vejbæk
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