By letter of 29 August 1997, John S. Foster, Honourary President of the World Energy Council, invited a small group to respond individually giving opinions on (1) the results of the IIASA study, and (2) the underlying determinants or assumptions of the study especially as they relate to Canada. Particular attention was to be given to the amount or proportion of energy provided by a given source. The opinions being solicited are those relating to the IIASA study as it is; no other scenarios are contemplated for the present. These views would be considered in the preparations for the next World Energy Congress to be held in Houston in 1998.
The IIASA authors are careful to point out the necessarily continuous nature of scenario- building in that their study does not and cannot deal with disruptive events. They summarize its central message as `the converging patterns of energy end use and infrastructures across the scenarios, despite diverging supply structures' as quoted from page 83 of the text.
This commentary deals with some of the outstanding issues over this period pertaining to Canada in the view of this author and it proved difficult to reconcile these with the more general approach in the IIASA Report.
The IIASA report cannot be criticized for using continuously or smoothly increasing numbers, but in considering world population estimates, one must always take into account the possibility of the spread of either old or new diseases for which antibiotics are either not available or becoming ineffective due to the evolution of resistant species. There is always the fateful possibility of a new plague similar to the ones that have occurred regularly throughout history especially as the rapid growth of air travel to the far corners of the world now provides the means of spreading such outbreaks rapidly. Nor can the possibility of famine be totally dismissed in some regions.
The authors of the report are correct when they suggest most of the gain in world population will occur in the developing countries of the south where there will be a rising tendency to form large urban conurbations. Nevertheless, they did not explore two related questions. Will cars have any practical use in such large cities? Already in such rich but crowded cities such as Manhattan in New York, Hong Kong, Singapore and the main Japanese centres, there is doubt as to their utility for even middle class people and perhaps only a rich élite can justify their ownership. Will this be eventually true of Mexico City, São Paulo and Bombay regardless of their growing wealth? The second question arises from the unexpectedly fast spread of modern telecommunications around the globe often based on the new wireless technologies. Will the advent of these new means of communication for both personal and business use lessen the tendency for the formation of these urban behemoths? More opportunities might well spread to the countryside. No one knows. Dr. Nakicenovic has written elsewhere on the possible saturation of demand for cars in the world but his team does not seem to have dealt with these issues directly in the IIASA Report (1).
The particular case of Canada is perhaps one of the most complex in the world. In 1996, this nation accounted for some 0.52% of the world's people, a share that has been generally falling slowly over the last two decades. In a world adding perhaps 80-90 million people each year at present, the position taken here is that it is not possible for this proportion to keep decreasing. Canada occupies too much space, is endowed with too many resources (especially water), and the spread of television has alleviated the fear of the cold endemic among southern peoples to some degree. For this reason, this writer believes Canada's population will not decline further than about 0.5% of the world's total for any length of time no matter what immigration policies the nation chooses to adopt. Any attempt at imposing tight restrictions will prove a failure for the simple reason there is no practical way of keeping people out who come via the U.S. Applying this rule sets the minimum Canadian population at 46 million in 2050 for the median case which implies an average population growth of at least 0.8% per year over the intervening years.
The difficulty the nation faces arises from the stress induced by the economic policies of the past decade or so. Anyone who doubts that the people of this country are not under stress should consult the medical or even the dental profession. Worse, this stress has fallen mainly upon the young. To cite only one example, already the average graduate of a four-year university course emerges $18,000 in debt (some sources place it even more), a figure now higher than the corresponding level in the U.S. Taken together with uncertain employment prospects, it is difficult for anyone to make family commitments so no one should be surprised the birth rate keeps falling faster than had been expected. Moreover, the recent free trade agreements allow talented Canadians to be spirited out of the country with a minimum of formality. Canada is thus caught both ways. The combination of this external pressure from the world's expanding population, a birth rate falling faster than had been anticipated and loss of the best people means that net immigration will account for about two-thirds of the nation's growth for the period through to 2050. To put this proportion in perspective, this figure is about twice the equivalent component of growth in the U.S. There are real questions as to whether this level is viable. What this means for energy policy is uncertain but it will surely have some effect over this period, perhaps from an unexpected direction. It is possible, for example, the ownership of personal vehicles will be somewhat lower than it might have been otherwise. One thing is clear: Canada's future is not what it used to be.
The application of new technology in the exploration and production segments of the industry is having the effect of extending the life of producing basins. The question is whether the extra oil is merely being produced sooner than it would have been otherwise or whether it would never have been found at all. If all the unexpected extra production were derived from `speeded-up' oil, then the decline curve would be expected to fall rather rapidly once past a certain critical point. Alternatively, if all the extra supply found was `new' oil, the decline curve would fall very slowly through the years to 2050. The chances are the ratio between `speeded-up' and `new' oil is about 50-50 for most producing basins but, so far, this value is far from understood with any degree of confidence.
Another major uncertainty in oil supply to 2050 would result from an abrupt fall in prices perhaps deliberately triggered by OPEC. As a basin matures, the production per well decreases with the result the cost of operation increases. If prices fall too far, it may no longer be profitable to keep low-production wells in service. Environmental regulations generally require abandoned wells to be `plugged' with the consequence they cannot be brought back into service in most circumstances if and when prices increase again. Only if it is profitable to re-drill would production be restored. The supply is thus asymmetric with price decreases in the sense that had there been no fall in prices, production would have continued for some years more. It is a matter of dispute how much oil production fell in the U.S. from this effect due to the sudden drop in prices in the 1980s but the loss was no doubt substantial. This lesson was not lost on the OPEC producers.
No effects of this kind on future oil supply are dealt with in the IIASA Report. It merely assumes ever more reserves will continue to be established from the resource base as needed but it does not take into account the possible problem of dealing with the combination of a steady growth in demand throughout the period coinciding at some time with an unexpected fall in output from some of the mature oil producers. Nor does it take into account the possibility world oil production from conventional sources will peak in the 95 million barrels per day range in the period about 2015-2020 as this author believes. Non-conventional sources of oil will no doubt be developed in the meantime, but Canada, as the largest producer of non-conventional oil in both relative and absolute quantities, knows as much as any country about the higher capital requirements, the difficult processing and transportation problems encountered, and the longer lead times to first production resulting when these resources are worked extensively. The result is a significant loss in the resiliency of the oil supply system and much will depend upon what attitude OPEC adopts.
There is nothing new in this possibility in that it was always possible to install a small unit based upon an automotive IC reciprocating engine (possibly using a low-cost engine recovered from junked cars or trucks) which is modified to accept natural gas as the fuel. The engine would drive a small generator and hot water could be produced in the radiator with sensible heat for space heating/absorption cooling supplied from the exhaust gases. The efficiency of conversion to electricity in the small co-generation units may not be as important as in the larger installations because in most such cases the thermal load is the more important; the energy not converted to electricity is recovered as useful heat in any case. It may be more difficult to control emissions since the problem is similar in some ways to that of cars although the constant speed and thus steadier operation is a help in this regard.
The wide-spread use of mini units of this kind would be useful from the point of view of mitigating emissions of carbon dioxide because of the high efficiencies inherent when operating in the co-generation mode. The other change from the past is institutional in nature: the utility is often (in the U.S. at least) obligated to take excess electricity from small producers and there are now energy service companies willing to contract for the installation, operation, maintenance and management of such installations. It is quite possible such an option could expand rapidly in parts of Canada (in the Atlantic Provinces?) in the period to 2050 with consequences that are difficult to predict. The demand for natural gas would generally increase but so would the efficiency of consumption. However, a major problem in stability could arise in the electrical supply system (see the following paragraph). This latter difficulty is self-reinforcing since any tendency, real or perceived, for the electrical network to falter might set off a rapid deployment of options of this kind: the most expensive electricity is to not have any.
These few items of personal choice have been presented to suggest where some unexpected difficulties and opportunities may arise. It may be useful to canvass members of the Energy Council of Canada to solicit a list of possible surprises and unexpected opportunities which could be considered and debated in detail in appropriate fora. The Council could take the leadership since it covers all fields.
There has been no case so far of any major nation being able to increase its GDP without also increasing its consumption of primary energy-the rule has been greater economic activity always requires more energy. But, paradoxically, as the IIASA Report notes, the faster the increase in GDP, the slower is the rate of increase in consumption of primary energy. In the future, some nation now heavily dependent upon conventional industrial activities might make a swift conversion to a post-industrial economy based upon the emerging technologies of the information age. In the latter case, it is possible the creation of wealth could increase while the consumption of primary energy declined, but until there is an actual example of this kind, this paradox will be with us.
The second paradox arises from the primary conclusion of the Report concerning the tendency over time to have many energy sources supplying networks, whether electrical grids or pipelines of one kind or another, which in turn deliver energy to users in a more useful form. For this reason, the need to maintain the integrity of these networks will become more important as the years go by. Over the same period, however, there will be a trend towards deregulation with the object of encouraging many competitive suppliers to these networks. The two trends taken together will make their operation and control steadily more difficult over time. The experience so far with the unravelling of the railway web and the deregulation of the telecommunications networks is not entirely reassuring. The result is thus contradictory and will lead to paradoxical situations.
The larger question is whether it will be possible to improve the air quality appreciably in these affected regions without imposing major limitations on the use of conventional vehicles and certain industries. Fortunately for Canada, California is facing this problem first. What is decided in that State will almost certainly have to be implemented sooner or later in south-western Ontario, the B.C. Lower Mainland, and perhaps some other more limited localities as the evidence of damage to health mounts especially on the need to reduce the quantity of fine particles suspended in the air.
The greenhouse gas issue and its main component-the carbon dioxide question-is entirely different in character. Global in nature, it requires continuous international negotiations for its eventual resolution. The scenarios chosen in the IIASA Report are useful for a first assessment of the issue but it is convenient to consider the issue in terms of three classes listed here in declining order of probability but increasing urgency. In the Class I situation, the present negotiations in the United Nations Framework Convention on Climate Change (FCCC) aimed at stabilization or a small reduction (say 10-15% by 2010) of greenhouse gas emissions will prove sufficient for the time being. Even such a minor objective will prove difficult to achieve.
In the Class II situation, the evidence is strong enough to require the reduction of emissions to reach constant concentrations in the atmosphere as soon as possible. This will require emissions to be reduced some 60% from present levels and, in the view of this writer, such a stringent target can only be achieved through the widespread adoption of techniques for the capture and sequestering of carbon dioxide. The actual production of the fossil fuels would thus fall more slowly. It is a paradox that for a given output of useful energy, the consumption of the fossil fuels actually increases in a given installation equipped for this practice because of the loss of conversion efficiency in operating the necessary facilities. It is possible that if changes in the flows of currents in the oceans can be shown to be influenced by the increasing content of greenhouse gases in the atmosphere, the world could be in a Class II situation within a decade. It is thus important to settle the question as to whether captured carbon dioxide may be sequestered safely in the deep oceans as soon as possible. There is the related issue of political acceptance following proof of technical and environmental feasibility. It is also important to determine whether suitable aquifers exist in Central Canada for the disposal of carbon dioxide. At the very least in a Class II situation in Canada, there will be a need to repair the reactors taken off-line recently by Ontario Hydro.
In the least likely Class III case, clear evidence of a rapidly changing non-linear climate event leads to a crisis situation. A problem of this magnitude would likely lead to the assessment of major geoengineering approaches, such as the deployment of techniques for increasing the transfer of carbon dioxide across the air/ocean interface. It is noteworthy that the costs of major geoengineering undertakings of this kind (if they are controllable or work at all) are comparable to those of other control options when assessed on the basis of an extra charge per tonne of carbon in the fossil fuels produced at the time. A carbon tax of $20 per tonne might produce some $120 billion in revenue each year on a world basis.
In both the latter two more serious situations, the United States, currently responsible for about one-quarter of the world's emissions of carbon dioxide, as a practical matter would have to take the lead. The United Nations Framework Agreement would still be the main forum for international negotiations of one kind or another but it is not likely the UN would be the agency responsible for any major direct action of this kind taken to mitigate or rectify this problem.
Only the last option is uncertain technically in the sense it is possible there could be substantial advances in this technique for the production of motor fuels in the next decade or so. This conversion process is one of the few that offers a market of sufficient size in relation to the quantity of resources available in the Middle East. Failing such a development, and despite the other options for natural gas, the delivered cost of LNG may determine the effective growth of the Canadian natural gas industry.
The quantity of natural gas available in Canada and the United States for the next few decades at least may be described in terms of a slowly rising fairly smooth supply curve. The Canadian original endowment is probably about half that of the U.S. on an equivalent basis but this effect is more than compensated by the fact that American gas consumption to date is about nine times that of Canada. Though the Canadian supply curve is higher that the American, the point for Canada is located at present far to the left on the higher Canadian curve as compared to the point for the U.S. on the lower American curve and is thus less in value.
The question at issue is whether the cost of LNG to California, a lumpy market located at the end of the pipeline system (in contrast to the other extreme of being linearly distributed along the line), would eventually restrict the growth of Canadian gas production through limitations in the resource base. At the present time, there seems to be no theoretical reason why LNG could not be delivered to California at prices that would not eventually prejudice the development of additional supply in Canada. It would not pay, for example, to develop known resources in the Arctic or even in northern Alaska or turn to non- conventional more expensive sources in the Western Canada Sedimentary Basin. At the lowest estimates of the cost of delivered gas via LNG tanker to U.S. markets, the price of gas might be fixed at Canadian gathering points in such a way that production could only be increased and maintained at a trillion or two cubic feet per year more than the present production when the rapid decline rates being experienced in some gas fields is considered. At higher prices, of course, there is ample gas. The emergence of a major LNG option is not well considered in the IIASA Report: already by 1996 only a little over three times as much gas crossed borders by pipelines as was delivered by specially- equipped tankers.
However events unfold, the world will be entering an era of the growing importance of natural gas perhaps for the next thirty years.
A difficult problem for Canada is arising in the UN Framework Convention on climate change. How is this country to obtain credit for the large volumes of natural gas it exports to the U.S. which serve, at least in part, to reduce greenhouse gas emissions in that country below what they would have been otherwise and which lead at the same time to increased emissions in Canada arising from the necessary production and transportation activities needed to deliver this gas to the border?
The problem is even more difficult in the field of energy embodied in the production of other goods. Canadian non-energy exports are significantly more energy-intensive than its corresponding non-energy imports as might be expected from the high proportion of large primary industries, including steel, in its general economy. It is important to resolve this question on some equitable basis because the opportunity for Canadians to specialize even more than at present in the energy-intensive industrial sector is growing through normal considerations of comparative advantage. There is nothing wrong in specializing in such energy-intensive industries but some better method of accounting for emissions between international trading partners is needed. Some particular problems related to the steel industry have recently been examined by this author.(6) A country that specializes in both energy production and the operation of energy intensive industries could and should take a prominent part in Activities Implemented Jointly (AIJ) between developed and developing countries which are now being negotiated as a component of the UN FCCC activity. Canada has already taken a lead in that the first major international conference in the AIJ field was held in Vancouver 26-29 May 1997. Important issues such the determination of baselines, additionality, monitoring and institutional arrangements remain to be resolved in this field. It is important that Canada play a major role in these negotiations whose resolution could do much to determine Canada's energy future.
Not only is this country's role in the transfer of the advanced technologies to developing countries at stake, but the issues also involve relations with developed countries. Currently, for example, plans have been announced which involve the importation of carbon dioxide recovered from a coal gasification plant in the U.S. for application to the enhanced recovery of oil from a mature reservoir in Saskatchewan. Under this proposal some proportion of the carbon dioxide imported will become permanently sequestered in the reservoir if the plans to build the necessary dedicated pipeline are in fact realized-this gas would otherwise continue to be released to the atmosphere. Later, carbon dioxide may be captured from local sources for this purpose.
The IIASA Report makes few references to this kind of activity now emerging in the energy industry. Subsequent studies might deal with these possibilities and their effect on the world's energy balances in more detail.
Nevertheless, other surprises are possible as well. The world population may increase more slowly than expected; the rapid spread of telecommunications throughout the world may make it possible for developing countries to cut short their time of passage through the industrialization stage when the need for energy (and for the capital required for energy installations) increases so rapidly; and there may be a serious loss of resiliency in the energy system when and if the world turns to more non-conventional sources of oil due to depletion effects encountered by some of the main producers in the period before 2050.
If mini-cogeneration proves feasible on a large scale, natural gas demand may be understated and severe problems may well be encountered with the stability of the electrical grid. It is not too soon to begin thinking about the software needed for its management under these radically different conditions.
The main general thrust of the IIASA Report is probably correct but a few notes have been made throughout this commentary where attention might be placed if this study is revisited in the future.
This writer paid very little attention to the post-2050 period. It is perhaps useful to examine the Twentieth Century which is now closing before thinking about the future. It would seem Quantum Electro-Dynamics with its phenomenal accuracy and its effect of undermining intuitive human common sense forever was what defined this Century best - what made it different from all the others before it. This field started at the turn of the century and still continues to deliver startling findings. It has prepared us all perhaps for the paradoxes to come. Looking at the next century, surely one of the main lines of endeavour will the modification of human DNA, first for the treatment of terrible human genetic afflictions but later, perhaps after 2050, for modifications to ourselves in some manner. This writer has no way of even thinking about the energy requirements of such a world. Yet many people are alive today who will be here in 2050; in fact, the very first people who will see the 22nd Century are just starting to arrive now.
September 1997
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