Much of big business, particularly the fossil fuel industry and its cheer-squad in the mainstream media, likes to dismiss the ambitions and the policy proposals of the green movement as some sort of unrealistic, utopian dream. But the bombshell dropped by the deeply conservative International Energy Agency in its World Energy Outlook, released overnight, should shake them out of their socks: It is not the environmentalists and clean energy developers that are kidding themselves about the world’s energy future needs, it’s Big Oil and Big Coal.

The IEA said overnight that the world is effectively heading for disaster. If it continues with business as usual, then the world is hurtling towards a 6°C global warming scenario, and the runaway impacts of climate change. But even under the “new policies” scenario, which includes the pledges made at the last UN climate talks in Cancun, and national initiatives such as Australia’s newly passed carbon pricing legislation, the world only gets one third down the track to where it has said it wants to be – limiting greenhouse gas emissions to 450 parts per million.

The World Energy Outlook is an annual publication keenly watched by the energy industries that it serves. Under its “new policies” scenario, coal, gas and oil have a rosy future. But the IEA says this is not good enough. “We cannot continue to rely on insecure and environmentally unsustainable uses of energy,” it says. “Governments need to introduce stronger measures to drive investment in efficient and low-carbon technologies. If fossil fuel infrastructure is not rapidly changed, the world will lose forever the chance to avoid dangerous climate change."

So the IEA also paints its 450 scenario – which it says gives the world an even bet at limiting global warming to 2°C – and it requires a dramatic and immediate change in policies and investment, effectively a halt to new coal fired power plants, increased deployment of gas (but only as a transitional fuel), massive investment in renewables, and a significant deployment in nuclear, particularly in developing economies (to replace their coal-fired plans). It also turns the assumptions made by Australian Treasury, and possibly the business plans of the oil, coal and gas industries, on their head.

The critical leap made by the IEA – often described as a bland, conservative organisation over its 40-year existence – is that it has now firmly embraced the concept that the world has a finite carbon budget. And it gives the energy industry, particularly those who seek to prevent early policy action, a clarion call about the implications.

The IEA calculates that 80 per cent of that carbon budget is already locked in by plants that have already been built. This “lock-in” leaves little room for manoeuvre. But delaying serious action until 2015, just three years away, would lift that lock-in to 95 per cent of the carbon budget, a scenario that that would mean that half of the world’s coal- and gas-fired energy plants would need to be shut early – by 2035.

If action was delayed until 2017, then the “lock-in” of existing plants would exceed the world’s carbon budget. In this case, the IEA says, if the world wants to meet that 450 target, then no new coal- or gas-fired generation could be built after that time, without forcing the immediate closure of another dirtier plant. Effectively, the only option after 2017 is to build emissions-free generation – renewables and nuclear. And not just that; the IEA says any investment in appliances, buildings and passenger and commercial vehicles after 2017 will also have to be emissions free, or require the early retirement of some existing plant or facility to create headroom for the new investment.

So what does the 450 scenario look like? According to the IEA, both our means of transport and our energy grids are completely transformed. Improved fuel efficiency plays the biggest role in transport, but by 2035, electric vehicles or plug-in hybrids will account for one third of all vehicle sales. Biofuels also are a major contributor.

The energy grid is dominated by renewables and the share of fossil fuels falls dramatically. Coal goes from 32 per cent of capacity (and 41 per cent of generation) to just 13 per cent (and 15 per cent), with a net loss of 300GW of capacity to 1,268GW. To understand the implications of that, around 330GW-worth of plants are now under construction, so more than 600GW of coal fired plants will have to be retired – much of it early. That’s not much of a growth scenario.

Gas nearly doubles its capacity, to 2,10GW, but its market share falls from 24 per cent to 22 per cent; nuclear’s share increases slightly to 9 per cent from 8 per cent, but its capacity also doubles (to 865GW), mostly in developing countries such as China, India and Korea. The share of hydro falls slightly, to 19 per cent from 20 per cent, although its capacity also nearly doubles to 1,803GW.

The most dramatic change is in non-hydro renewables, whose share increases phenomenally – from just 4 per cent in 2009, to 34 per cent of global electricity capacity in 2035. Wind capacity grows 10-fold to 1,685GW, sending Landscape Guardians across the globe completely barmy. Solar PV rises 40-fold to 901GW from 22GW in 2009; solar thermal leaps from just 1GW to 226GW; geothermal from 11GW to 60GW; marine from zero to 23GW, and biomass grows six-fold to 329GW. In terms of generation, non-hydro renewables soar to 28 per cent from just 2 per cent in 2009, nuclear and hydro have a 20 per cent share each, while coal drops from 41 per cent to 15 per cent, and gas from 21 per cent to 17 per cent.

There couldn’t be a clearer picture about where the investment and business and job opportunities lie in the future. According to the IEA scenario, solar thermal has a compound annual growth rate in investment of 35 per cent from 2011 to 2035, little wonder that the world’s biggest energy groups are falling over each other trying to get hold of the best technology. Solar PV, even after its spectacular growth in recent years, delivers 15 per cent compound annual growth for the next two and a half decades, wind grows at 10 per cent per annum and marine at 18 per cent.

The renewables sector will attract a total of $20 trillion in new investment. The other growth industries in this scenario are clean transport – fuel efficiency and EVs - which attract around $6.3 trillion. The building sector attracts an extra $4.1 trillion, “smart” energy technology attracts $2 trillion. The losers? Coal capacity slumps by 0.5 per cent per year out to 2035, a net reduction in investment of $6 trillion, and investment in poles and wries would be reduced by $900 billion – even after the investment needed to accommodate intermittent renewables. There is a lot at stake for vested interests.

And if all this sounds like it is horrendously expensive and should be put off for as long as possible – echoing those old chestnuts trotted out by business lobbies hand-wringing about poor economic conditions, and it not being the right time – then the IEA is dismissive. “Delaying action is a false economy,” it says. “For every $1 of avoided investment between 2011 and 2020, either through reduced low-carbon investment or adoption of cheaper fossil-fuel investment options, an additional $4.30 would need to be spent between 2021 and 2035 to compensate for the increased emissions."

But there is another surprise. The aggressive investment in the 450 scenario, which includes the dismantling of fossil fuel subsidies, and the diversion of some of that to renewables, will mean consumers around the world actually pay $669 billion less in energy costs than they otherwise would. And, says the IEA, there are other benefits: less pollution; more countries that are energy self reliant (less chance of conflict); healthier people who live longer; and a much greater chance of preventing runaway global warming, with far lower adaptation costs. It seems like a policy no-brainer.

But contrast the 450 scenario to the direction we are now headed. Australian miners are relatively happy for the world’s politicians to continue to say they want to limit global warming to 2°C, but not actually implement the policies to do it. In the IEA's “New Policies” scenario, Australia is actually the only major OECD country to increase coal production out to 2035 and, along with Indonesia, to dominate regional trade, which is why so many coal companies are piling into NSW and Queensland to dig the ore up.

But in the 450 scenario, should politicians get their act together, the outlook is turned on its head. China is no longer Australia’s biggest customer, it actually ceases to become an importer of coal. Output in the US and Europe declines dramatically, India becomes the biggest customer. These go completely against the scenarios outlined by Australian Treasury.

The IEA says gas may well be facing a “golden” age, but it is not inevitable. It carries several caveats. Like renewables, it will require the policy intervention of governments to displace coal – this could be mandated closures, or a high enough carbon price. This is particularly so in China, where the IEA says gas would have little impact on the power mix if market economics became the absolute priority for deployment in power generation in that country. In certain scenarios – such as the delayed response to 450, and the delayed deployment of CCS – the golden age is brought to an abrupt halt, possibly as early as 2030, when it begins to decline. In all scenarios, renewables account for a far greater level of abatement of either gas or nuclear, second only to reduced consumption, or energy efficiency.

But if these scenarios look like hell on earth for Big Coal and Big Oil, the IEA paints an even more radical scenario – the one that happens if policies are delayed, but the world finally decides that it wants to get to 450 in a big hurry. In other words, what does it do if OECD countries do not lock in, by 2013, CO2 pricing and support for low-carbon technologies at levels which are strong enough to steer the energy sector onto a steep decarbonisation path? This, after all, given the state of international negotiations and individual country commitments, is the most likely scenario.

Essentially it means the early retirement of fossil fuel plants – well ahead of their economic life. Anyone building a new coal-fired power station, or even a gas-fired power station, cannot rely on it surviving until the end of its normal economic life, unless stringent policies are implemented within two years, or there is a great leap ahead in CCS.

But of particular concern to the IEA is that the rollout of CCS is delayed. This will require an even greater shift to renewables, and particularly solar PV in buildings. Wind would have to grow at 90GW a year; sales of hybrids, plug-in hybrids and electric vehicles would need to be three quarters of passenger and commercial vehicle sales in 2035, requiring a significant transformation of the infrastructure used to fuel/recharge the cars. There would also need to be a more rapid roll-out of nuclear.

But therein lies a problem. The IEA says the accident at the Fukushima Daiichi power station has led to a re-evaluation of the risks associated with nuclear power, and to greater uncertainty about the future role of nuclear power in the energy mix. It paints varying scenarios, including a “low nuclear case” in which it plays a smaller role in global energy supply, and more is required of renewables to compensate – 20 per cent more than in the base-case 450 scenario. And CCS would need to deliver 30 per cent more.

But what would happen if both CCS failed to deliver in time, and governments were reluctant to push the button on nuclear? The IEA doesn’t cover that scenario; it’s not quite ready to go there. Maybe next year.

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