©Philip Noble/Reuters

Global energy challenges

G20 countries are treating a range of energy issues as a central concern, but four of them require particular attention.

Seven years ago, Russia hosted the G8 for the first time. Energy was one of the central themes up for discussion, and indeed the Saint Petersburg Global Energy Security Principles agreed at the G8 summit became an important landmark, reinforcing the concept of “security of demand”: it was an historic nod to the interests of energy-producing countries.

Now, seven years on, Russia is again in the role of host, this time of the G20, and again energy is high on the agenda. However, global governance has changed significantly since 2006, notably reflecting the shift in demand towards emerging markets.

In fact, energy has long been a key topic of the G20 process, and the International Energy Agency (IEA) has been fortunate to play a supporting role since the Pittsburgh Summit in 2009. The G20 energy agenda has maintained consistent and ongoing work-streams over several years, and such continuity is key to the success of the G20 and its impact on policymakers and markets.

There has been one innovative change during the current Russian presidency, and that is to gather the work under a single category of “energy sustainability”, which is managed by one working group and covers both energy markets and environmental issues. The working group has had to cover a broad range of topics, but the following are particularly crucial for global energy.

Phasing out fossil fuel subsidies

Since Pittsburgh, a key energy priority of G20 leaders has been to reduce fossil fuel subsidies which encourage wasteful consumption, disproportionately benefit wealthier countries and sectors, and tend to distort energy markets. Together with OPEC, the OECD and the World Bank, the IEA has produced a series of reports measuring the scope of subsidies and their cost (around US$523 billion in 2011), and has also outlined a global roadmap to phase them out. In 2012, G20 leaders welcomed an important progress report on that phaseout. To spur more action, and at the suggestion of finance ministers, in 2013 G20 leaders will introduce a voluntary peer review process for G20 members concerning the reduction of fossil fuel subsidies. Under this system, G20 countries may be assessed on a voluntary basis by G20 peers. This is a major step forward by the Russian G20 presidency, particularly given the extent of the subsidies issue that Russia and other G20 members must still address.

Price volatility

It was in response to the global financial and economic crisis that the G20 became the primary economic council of major economies in 2009, so it should come as little surprise that major oil price fluctuations, such as those of the past year, have remained a key preoccupation of the G20. Based on previous work in this area, the 2011 French G20 presidency made commodity price volatility a particular priority, and discussions on oil price formation and transparency became mainstays of the agenda. That same year, the IEA, together with OPEC, the International Energy Forum (IEF) and the International Organization of Securities Commissions (IOSCO), delivered a report highlighting the role, functioning and oversight of the Price Reporting Agencies (PRAs)–those vital, privately owned publishers and information providers who report oil prices transacted in physical and some derivative oil markets.

In 2012 the IEA was tasked by the G20 to prepare a policy paper on price formation. The key finding of this analysis was clear: there was no evidence that financial flows into global oil markets caused price movements over a sustained period of time in ways that could not be explained by market fundamentals. Under the Russian presidency, a third joint IEAIEF- OPEC workshop on price formation was held in March 2013, and work will continue into 2014, when a key auditing report on the PRAs is due.

Market transparency

G20 leaders have been committed to increasing market transparency based on accurate and timely energy data. The Joint Organisations Data Initiative (JODI) has therefore become a flagship international project and is actively promoted by the IEA. Initially focused on oil, this international statistical database is also in the process of being extended to include natural gas statistics as well.

This work will continue through Saint Petersburg. JODI-Oil will be comprehensively assessed for its added value, and JODI-Gas will be reviewed following its recent launch.

Climate change: Towards Paris 2015

While fossil fuel subsidies, price volatility and data transparency will remain priorities for government leaders and finance ministers, sustainability, green growth and in particular climate change will likely garner the most public attention, both in Saint Petersburg and onwards to the G20 Summit in Brisbane in 2014. Then, all eyes will be on preparations for the multilateral climate change negotiations, set to take place in Paris in 2015. Already this year, however, the global efforts to mitigate climate change passed a grim milestone when carbon concentration in the atmosphere topped 400 parts of CO2 per million. That milestone marks the collective failure to fulfil national and international pledges to limit global temperature rises to 2°C over the long term. In short, the international community is drifting off-track, and we are still two years away from negotiations in Paris.

It is against this backdrop that in June 2013 the IEA released a World Energy Outlook special report, “Redrawing the Energy-Climate Map”. The report examined four critical steps that can be taken before 2020, in the absence of implementation of a multilateral agreement on climate change, to keep the world on track to limiting long-term global temperature rises to 2°C. These time-critical measures, which incur zero net economic cost and use proven technologies, can help keep the fast closing door open to that important international goal. Of the four (which also include limiting the construction of the least-efficient types of coal power plants, minimising methane emissions from upstream oil and gas production, and accelerating the phase out of fossil fuel subsidies), energy efficiency measures accounted for nearly half of all carbon savings over the outlook period to 2020. These and other “stopgap” measures must be considered in the run-up to 2015, and we at the IEA encourage the G20 leaders to adopt them.

Co-operation matters

Over recent years, the IEA has continuously broadened and deepened its bilateral co-operation with key emerging economies. This enhanced engagement, a natural response to global economic shifts, has been driven by the conviction that closer co-operation between key global energy players benefits not only those countries actively involved, but also the world economy as a whole. It is against this background that the IEA and a range of non-IEA G20 countries are currently discussing the creation of a multilateral platform for association and closer cooperation on key energy issues. With this initiative the IEA is hoping to contribute to shaping the future development of global energy governance, in which the key emerging economies will play a major role. The involvement of the IEA in G20 energy work will help to further build the trust and confidence needed among all stakeholders for the success of this welcome initiative.

References

IEA (2013), “Redrawing the Energy-Climate Map”, World Energy Outlook Special Report, OECD/IEA, OECD Publishing 

“Joint report by IEA, OPEC, OECD and World Bank on fossil-fuel and other energy subsidies: An update of the G20 Pittsburgh and Toronto Commitments”, Prepared for the G20 Meeting of Finance Ministers and Central Bank Governors (Paris, 2011) and the G20 Summit (2011)

“Analysis of the Scope of Energy Subsidies and Suggestions for the G-20 Initiative”, (2010), IEA, OPEC, OECD, World Bank Joint Report Prepared for submission to the G-20 Summit Meeting Toronto (Canada)

“The Scope of Fossil-Fuel Subsidies in 2009 and a Roadmap for Phasing Out Fossil-Fuel Subsidies” (2010), An IEA, OECD and World Bank Joint Report prepared for the G-20 Summit, Seoul (Republic of Korea)

Oil Price Reporting Agencies (2011), Report by IEA, IEF, OPEC and IOSCO

www.oecd.org/g20

© OECD Observer No 295 Q2 2013




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