Part 2. Energy resources and technological options

Physical resources and technical opportunities are available - or could become available - to meet the challenge of sustainable development Without policy changes, cost differentials may favour conventional fuels for years to come. Options for using energy in ways that support sustainable development, which requires addressing environmental concerns, include: · More efficient use of energy, especially at the point of end use in buildings, electric appliances, vehicles, and · Increased reliance on renewable energy sources. · Accelerated development and deployment of new energy technologies, particularly next-generation fossil fuel technologies that produce near-zero harmful emissions - but also nuclear technologies, if the problems associated All three options have considerable potential, but realising this potential will require removing obstacles to wider diffusion, developing market signals that reflect environmental costs, and encouraging technological innovation.

Energy resources

Careful analysis of the long-term availability of energy resources, starting with conventional and unconventional oil and gas, indicates that these resources could last another 50-100 years - and possibly much longer - with known exploration and extraction technologies and anticipated technical progress in upstream operations. Coal resources and nuclear materials are so abundant that they could, respectively, last for centuries or millennia. Moreover, although fossil fuel prices may rise slowly over time, the large, cost-driven increases in energy prices projected in the 1970s and 1980s will not take place in the foreseeable future.

As evidenced by rising oil prices in the winter of 1999/2000, however, prices are subject to volatility. This may occur, for example, if cartels set prices independent of production costs. Some fluctuations in prices can also be expected, especially during the transition to a large-scale use of unconventional oil and gas resources, because the timing of investments in upstream production capacities may not correspond with demand. Other cost-pushing factors could arise from the environmentally more challenging extraction of unconventional oil resources.

Renewable resources are more evenly distributed than fossil and nuclear resources, and energy flows from renewable resources are more than three orders of magnitude higher than current global energy use. But the economic potential of renewables is affected by many constraints - including competing land uses, the amount and timing of solar irradiation, environmental concerns, and wind patterns.

Although there are no real limitations on future energy availability from a resource point of view, the existence of resources is of little relevance without consideration of how these can contribute to the supply of (downstream) energy services. Rather, the key concerns are: Can technologies to extract, harvest, and convert these vast energy stocks and flows be developed in time? Will these processes have adverse implications? Will the energy services eventually generated from these resources be affordable? Historical evidence suggests that these concerns may be at least partly offset by technological progress, but that such progress needs to be encouraged - by regulations to improve market performance, temporary subsidies, tax incentives, or other mechanisms - if it is to occur in a timely fashion.

Over the next 20 years the amount of primary energy required for a given level of energy services could be cost-effectively reduced by 25-35 percent industrialised countries.

Energy end-use efficiency

The quadrupling of oil prices in the 1970s, the growing awareness of energy-related pollution, and the possibility of climate change have all contributed to a re-evaluation of energy use. The result has been an improvement in the efficiency with which energy is used in industry and power generation as well as in lighting, household appliances, transportation, and heating and cooling of buildings. This more efficient use of energy is a major factor contributing to the improvements in energy intensity that have occurred historically in almost all OECD countries, and more recently in many transition economies, as well as in some in fast-growing developing countries such as Brazil and China.

Today the global energy efficiency of converting primary energy to useful energy is about one-third (see figure 1). In other words, two-thirds of primary energy is dissipated in the conversion processes, mostly as low-temperature heat. Further significant losses occur when the useful energy delivers the energy service. Numerous and varied economic opportunities exist for energy efficiency improvements, particularly in this final conversion step from useful energy to energy services. Taking advantage of these opportunities, which have received relatively little attention, has the largest potential for cost-effective efficiency improvements. It would mean less costly energy services and lower energy-related pollution and emissions.

Over the next 20 years the amount of primary energy required for a given level of energy services could be cost-effectively reduced by 25-35 percent in industrialised countries (the higher figure being achievable by more effective policies). These reductions are mostly in the conversion step of useful energy to energy services in the residential, industrial, transportation, public, and commercial sectors. Reductions of more than 40 percent are cost-effectively achievable in transition economies. And in most developing countries - which tend to have high economic growth and old capital and vehicle stocks - the cost-effective improvement potentials range from 30 to more than 45 percent, relative to energy efficiencies achieved with existing capital stock.¹²

The improvements of about 2 percent a year implied by the above figures could be enhanced by structural changes in industrialised and transition economies, by shifts to less energy-intensive industrial production, and by saturation effects in the residential and transportation sectors. These combined effects, made up by efficiency improvements and structural changes, could lead to decreases in energy intensity of 2.5 percent a year. How much of this potential will be realised depends on the effectiveness of policy frameworks and measures, changes in attitudes and behaviour, and the level of entrepreneurial activity in energy conservation.

The next few decades will likely see new processes, motor systems, materials, vehicles, and buildings designed to reduce useful energy demand. Because the demand for cars is expected to grow rapidly in the developing world, gaining greater efficiencies in this area will be very important. In addition, rapidly industrialising countries could greatly profit from the introduction of radically new and more efficient technologies in their energy-intensive basic materials processing. Because these countries are still building their physical infrastructure, they have a growing demand for basic materials. This opens a window of opportunity to innovate and improve efficiencies of production, particularly in countries undergoing market reform. The opportunities are larger at the point of new investment, relative to retrofitting.

Over the long term, additional and dramatic gains in efficiency are possible at all stages of energy conversion, particularly from useful energy to energy services. Analysis shows that current technologies are not close to reaching theoretical limits, and that improvements of an order of magnitude for the whole energy system may eventually be achieved.¹³

For a number of reasons the technical and economic potentials of energy efficiency, as well as its positive impact on sustainable development, have traditionally been under-realised. Achieving higher end-use efficiency involves a great variety of technical options and players. Because it is a decentralised, dispersed activity, it is a difficult issue for which to organise support. And because it has little visibility, energy efficiency is not generally a popular cause for politicians, the media, or individuals looking for recognition and acknowledgement. In addition, significant barriers - primarily market imperfections that could be overcome by targeted policy instruments - prevent the realisation of greater end-use efficiencies. These barriers include:

· Lack of adequate information, technical knowledge, and training.

· Uncertainties about the performance of investments in new and energy-efficient technologies.

· Lack of adequate capital or financing possibilities.

· High initial and perceived costs of more efficient technologies.

· High transaction costs (for searching and assessing information and for training).

· Lack of incentives for careful maintenance.

· The differential benefits to the user relative to the investor (for example, when energy bills are paid by the renter rather than the property owner).

· External costs of energy use, not included in energy prices.

· Patterns and habits of consumers, operators, and decision-makers, which may be influenced by many factors, including ideas of social prestige and professional norms.

Realising cost-effective energy efficiency potentials will be beneficial not only for individual energy consumers, but also for the economy as a whole. For example, saved energy costs can be used to produce energy-saving domestic goods and services. And as cost-effective energy improvements are realised, additional profitable opportunities for improvement will continue to open up as a result of research and development, learning curves, and economies of scale. That means that continual cost-effective energy efficiency improvements can be expected.

Renewable energy sources have the potential to provide energy services with zero or almost zero emissions of both air pollutants and greenhouse gases.

Energy efficiency policies that use direct or indirect price mechanisms (such as the removal of subsidies and the incorporation of externalities) are effective in lowering consumption trends in price-sensitive sectors and applications. But even without changing the overall price environment, energy efficiency policies should be pursued to address market failures. For example, efficiency standards, appliance and product labelling, voluntary agreements, and professional training or contracting can increase GDP growth by improving environmental and economic performance, using a given quantity of energy. Legal standards; well-informed consumers, planners, and decision-makers; motivated operators; and an adequate payments system for energy are central to the successful implementation of energy efficiency improvements.¹⁴

Renewable energy technologies

Renewable energy sources (including biomass, solar, wind, geothermal, and hydropower) that use indigenous resources have the potential to provide energy services with zero or almost zero emissions of both air pollutants and greenhouse gases. Currently, renewable energy sources supply 14 percent of the total world energy demand. The supply is dominated by traditional biomass used for cooking and heating, especially in rural areas of developing countries. Large-scale hydropower supplies 20 percent of global electricity. Its scope for expansion is limited in the industrialised world, where it has nearly reached its economic capacity. In the developing world, considerable potential still exists, but large hydropower projects may face financial, environmental, and social constraints.

Altogether, new renewable energy sources contributed 2 percent of the world's energy consumption in 1998, including 7 exajoules from modern biomass and 2 exajoules for all other renewables (geothermal, wind, solar, and marine energy, and small-scale hydropower). Solar photovoltaics and grid-connected wind installed capacities are growing at a rate of 30 percent a year. Even so, it will likely be decades before these new renewables add up to a major fraction of total energy consumption, because they currently represent such a small percentage.

Substantial price reductions in the past few decades have made some renewables competitive with fossil fuels in certain applications in growing markets. Modern, distributed forms of biomass seem particularly promising for their potential to provide rural areas with clean forms of energy based on the use of biomass resources that have traditionally been used in inefficient, polluting ways. Biomass can be economically produced with minimal or even positive environmental impacts through perennial crops. Wind power in coastal and other windy regions is promising as well.

Unlike hydropower and conventional thermal power sources, wind and solar thermal or electric sources are intermittent.

Nevertheless, they can be important energy sources in rural areas where grid extension is expensive. They can also contribute to grid-connected electricity supplies in appropriate hybrid configurations. Intermittent renewables can reliably provide 10-30 percent of total electricity supplies if operated in conjunction with hydropower- or fuel-based power generation. Emerging storage possibilities and new strategies for operating grids offer promise that the role of intermittent technologies could be considerably larger.

Significant barriers, which could be overcome by appropriate frameworks and policies, stand in the way of the accelerated development of renewable technologies. These barriers include economic risks, regulatory obstacles, limited availability of products, information and technology gaps, and lack of investment. The greatest challenge is financial, even though costs have come down significantly over the past several decades. Table 4 summarises the status of various renewable technologies, and also provides information on trends in cost and capacity.

Many renewable technologies, because they are small in scale and modular, are good candidates for continued cost-cutting as a result of field experience. The cost reductions of manufactured goods, which are typically rapid at first and then taper off as the industry matures, are called experience curves. These curves resulted in industry-wide cost declines of about 20 percent for each cumulative doubling of production for solar photovoltaics, wind generators, and gas turbines - due to learning effects, marginal technological improvements, and economies of scale (figure 6). Similar declines are expected for other small-scale renewables.

A rapid expansion of renewable-based energy systems will require actions to stimulate the market in this direction. This expansion can be achieved by finding ways to drive down the relative cost of renewables in their early stages of development and commercialisation, while still taking advantage of the economic efficiencies of the marketplace. Pricing based on the full costs of conventional energy sources (including phasing out subsidies and internalising externalities) will make renewables more competitive. Because internalising external costs may be controversial for some time, 'green' pricing of electricity and heat (which lets consumers pay more for environmentally benign energy supplies if they choose) may be an immediate option in industrialised countries.

Advanced energy technologies

Fossil energy

Sustainability goals indicate the importance of evolving fossil energy technologies towards the long-term goal of near-zero air pollutant and greenhouse gas emissions without complicated end-of-pipe control technologies. Near-term technologies and strategies should support this long-term goal.

The technological revolution under way in power generation, where advanced systems are replacing steam turbine technologies, does support this long-term goal. Natural-gas-fired combined cycles offering low costs, high efficiency, and low environmental impacts are being chosen wherever natural gas is readily available - in some countries even displacing large new hydropower projects. Cogeneration is more cost-effective and can play a much larger role in the energy economy - if based on gas turbines and combined cycles rather than on steam turbines.

Reciprocating engines and emerging microturbine and fuel cell technologies are also strong candidates for cogeneration at smaller scales, including commercial and apartment buildings. Coal gasification by partial oxidation with oxygen to produce syngas (mainly carbon monoxide and hydrogen) makes it possible to provide electricity through integrated gasifier combined cycle (IGCC) plants with air pollutant emissions nearly as low as for natural gas combined cycles. Today power from IGCC cogeneration plants is often competitive with power from coal steam-electric plants in either cogeneration or power-only configurations.

Although synthetic liquid fuels made in single-product facilities are not competitive, superclean syngas-derived synthetic fuels (such as synthetic middle distillates and dimethyl ether) produced in polygeneration facilities that make several products simultaneously may soon be. Syngas can be produced from natural gas by steam reforming or other means or from coal by gasification using oxygen, as noted. Expanding markets for clean synthetic fuels are likely to result from toughening air pollution regulations. Synthetic fuels produced through polygeneration will be based on natural gas if it is readily available. Synthetic middle distillates so produced are likely to be competitive where low-cost natural gas is available (as at remote developing country sites); the technology might facilitate exploitation of relatively small remote natural gas fields.

In natural-gas-poor, coal-rich regions, polygeneration based on coal gasification is promising. Such systems might include production of extra syngas for distribution by pipelines to small-scale cogeneration systems in factories and buildings - making possible clean and efficient use of coal at small as well as large scales. Rapidly growing polygeneration activity is already under way in several countries based on the gasification of low-quality petroleum feedstocks - activity that is helping to pave the way for coal-based systems.

TABLE 4. CURRENT STATUS AND POTENTIAL FUTURE COSTS OF RENEWABLE ENERGY TECHNOLOGIES

Technology	Increase in installed capacity in past five years (percent a year)	Operating capacity, end 1998	Capacity factor (percent)	Energy production, 1998	Turnkey investment costs (U.S. dollars per kilowatt)	Current energy cost	Potential future energy cost
Biomass energy
Electricity	»3	40 GWe	25-80	160 TWh (e)	900-3000	5-15 (¢;/kWh	4-10 ¢/kWh
Heat2	»3	> 200 GWth	25-80	> 700 TWh (th)	250-750	1-5 ¢/kWh	1-5 ¢/kWh
Ethanol	»3	18 billion litres		420 PJ		8-25 $/GJ	6-10 $/GJ
Wind electricity	»30	10 GWe	20-30	18 TWh (e)	1100-1700	5-13 ¢/kWh	3-10 ¢/kWh
Solar photovoltaic electricity	»30	500 MWe	8-20	0.5 TWh (e)	5000-10000	25-125 ¢;/kWh	5 or 6-25 ¢/kWh
Solar thermal electricity	»5	400 MWe	20-35	1 TWh (e)	3000-4000	12-18 ¢/kWh	4-10 ¢/kWh
Low-temperature solar heat	»8	18 GWth (30 million m2)	8-20	14 TWh (th)	500-1700	3-20 ¢/kWh	2 or 3-10 (¢/kWh
Hydroelectricity
Large	»2	640 GWe	35-60	2510 TWh (e)	1000-3500	2-8 ¢/kWh	2-8 ¢/kWh
Small	»3	23 GWe	20-70	90 TWh (e)	1200-3000	4-10 ¢/kWh	3-100 ¢/kWh
Geothermal energy
Electricity	»4	8 GWe	45-90	46 TWh (e)	800-3000	2-10 ¢/kWh	1 or 2-8 (¢/kWh
Heat	»6	11 GWth	20-70	40 TWh (th)	200-2000	0.5-5 ¢/kWh	0.5-5 ¢/kWh
Marine energy
Tidal	0	300 MWe	20-30	0.6 TWh (e)	1700-2500	8-15 ¢/kWh	8-15 ¢/kWh
Wave	-	exp. phase	20-35	Unclear	1500-3000	8-20 ¢/kWh	Unclear
Current	-	exp. phase	25-35	Unclear	2000-3000	8-15 ¢/kWh	5-7 (¢/kWh
OTEC	-	exp. phase	70-80	Unclear	Unclear	Unclear	Unclear

Note: The cost of grid-supplied electricity in urban areas ranges from 2-3 (c/kWh (off-peak) to 15-25 c/kWh) (peak). See chapter 11.
a. Heat embodied in steam (or hot water in district heating), often produced by combined heat and power systems using forest residues, black liquor, or bagasse.

Source: Chapter 7.

Barriers to widespread deployment of advanced cogeneration and polygeneration systems are mainly institutional. Most systems will produce far more electricity than can be consumed on-site, so achieving favourable economics depends on being able to sell co-product electricity at competitive prices into electric grids. Utility policies have often made doing so difficult, but under the competitive market conditions towards which electric systems are evolving in many regions, cogeneration and polygeneration systems will often fare well.

FIGURE 6. EXPERIENCE CURVES FOR PHOTOVOLTAICS, WINDMILLS, AND GAS TURBINES IN JAPAN AND THE UNITED STATES

Technology performance and costs improve with experience, and there is a pattern to such improvements common to many technologies. The specific shape depends on the technology, but the persistent characteristic of diminishing costs is termed the 'learning' or 'experience' curve. The curve is likely to fall more sharply as technologies first seek a market niche, then full commercialisation, because lower costs become increasingly important for wider success.

Source: Nakicenovic, Gr and McDonald, 1998.

If wise decisions are not made during the next few decades, certain development opportunities might not be achievable.

The near-term pursuit of a syngas-based strategy could pave the way for widespread use of hydrogen (H2) as an energy carrier, because for decades the cheapest way to make H₂ will be from fossil-fuel-derived syngas. The successful development of fuel cells would facilitate the introduction of H₂ for energy. Fuel cells are getting intense attention, especially for transportation, because they offer high efficiency and near-zero air pollutant emissions. Automakers are racing to develop fuel cell cars, with market entry targeted for 2004-10. The fuel cell car will compete for the role of 'car of the future' with the hybrid internal combustion engine/battery powered car already being introduced into the market.

Syngas-based power and H₂ production strategies also facilitate separation and storage of CO₂ from fossil energy systems, making it possible to obtain useful energy with near-zero emissions of greenhouse gases without large increases in energy costs. Recent research suggests that the global capacity for secure disposal of CO₂ in geological reservoirs might be adequate to dispose of CO₂ from fossil fuel use for hundreds of years, although more research is needed to be sure about this.

Other advanced technologies (ultrasupercritical steam plants, pressurised fluidised-bed combustion, coal IGCC based on partial oxidation in air for power generation, direct coal liquefaction for synthetic fuels production) offer benefits relative to conventional technologies. But unlike syngas-based technologies, such options in the near term would not offer clear paths to the long-term goal of near-zero emissions without significant increases in costs for energy services.

Nuclear energy

World-wide, nuclear energy accounts for 6 percent of energy and 16 percent of electricity. Although nuclear energy dominates electricity generation in some countries, its initial promise has not been widely realised. Most analysts project that nuclear energy's contribution to global energy will not grow - and might decline during the initial decades of the 21st century. Nuclear power is more costly than originally projected, competition from alternative technologies is increasing, and there has been a loss of public confidence because of concerns related to safety, radioactive waste management, and potential nuclear weapons proliferation.

But because nuclear power can provide energy without emitting conventional air pollutants and greenhouse gases, it is worth exploring if advanced technologies could offer simultaneously lower costs, boost public confidence in the safety of nuclear reactors, assure that peaceful nuclear programs are not used for military purposes, and demonstrate effective nuclear waste management practices. Unlike Chernobyl-type reactors, the light water reactors (LWRs) that dominate nuclear power globally have a good safety record - although this record has been achieved at considerable cost to minimise the risk of accidents.

The potential linkage between peaceful and military uses of nuclear energy was recognised at the dawn of the nuclear age. Efforts to create a non-proliferation regime through the Nuclear Non-Proliferation Treaty and a series of regional treaties, controls on commerce in nuclear materials and goods and services that might be used to further military ambitions, and safeguards applied to nuclear materials in peaceful nuclear applications have been largely successful in separating peaceful and military uses. If there is to be an energy future in which nuclear power eventually contributes much more than at present, stronger institutional measures will be needed to maintain this separation. These measures should be complemented by technological advances aimed at limiting opportunities to acquire nuclear weapons under the guise of peaceful nuclear energy applications and to steal weapons-usable nuclear materials.

Reactor development activity for the near term has involved both evolutionary LWRs and new concepts. Reactor vendors now offer several evolutionary LWRs with improved safety features and standardised designs, for which there can be a high degree of confidence that performance and cost targets will be met. Another evolutionary activity involves modifying LWRs to make them more proliferation resistant through a denatured uranium or thorium fuel cycle. One concept being revisited, the pebble bed modular reactor, offers the potential for a high degree of inherent safety without the need for complicated, capital-intensive safety controls. A pebble bed modular reactor could also be operated on a proliferation resistant denatured uranium- or thorium fuel cycle.

Access to low-cost uranium supplies could constrain nuclear power development based on LWRs. The plutonium breeder reactor, which requires reprocessing spent fuel to recover plutonium for recycling in fresh fuel, was once thought to be a viable option for addressing this challenge. But electricity costs for breeders would probably be higher than for LWRs, at least until late in the 21st century, and preventing proliferation is much more challenging with reprocessing and plutonium recycling than with LWRs operated on once-through fuel cycles.

Other long-term options for addressing the nuclear resource constraint are alternative breeder concepts - including particle-accelerator-driven reactors, uranium from seawater, and thermonuclear fusion. The prospective costs, safety, and proliferation resistance features of such alternative breeder concepts are uncertain, and the concepts would take decades to develop. Recent research suggests it might be feasible, at relatively low cost, to extract uranium from seawater, where its concentration is low but total quantities are vast. If the technology could be deployed at globally significant scales, it might be feasible to avoid making major commitments to nuclear fuel reprocessing and plutonium recycling. Fusion could provide an almost inexhaustible energy supply, but it will probably not be commercially available before 2050.

Radioactive waste by-products of nuclear energy must be isolated so that they can never return to the human environment in concentrations that could cause significant harm. Although the safety of long-term waste disposal has not been proven, the technical community is confident that this objective can be realised - largely because of the small volumes of wastes involved. But in most countries there is no social consensus on the goals and standards for radioactive waste disposal and on strategies (both interim and long-term) for implementing them. The issues involved are only partly technical. The current social stalemate on waste disposal not only clouds prospects for nuclear expansion, it also has made spent fuel reprocessing a de facto interim nuclear waste management strategy in some countries. This has happened even though fuel reprocessing does not offer economic gains and does not solve the waste disposal problem - it merely buys time and is creating large inventories of plutonium that must be disposed of with low proliferation risk.