The Energy Architecture Performance Index 2015:
Given the key role the world’s major economies play in global patterns of production and consumption, it is valuable to understand the chokepoints facing their energy systems. With this in mind, this section examines the EAPI performance of the four largest advanced and four largest emerging economies by GDP (2013): the United States, China, Japan, Germany, France, Brazil, the Russian Federation and India (Figure 4).16
With the exception of France, none of these nations are in the group of top 10 performers on the EAPI. Previous work by the World Economic Forum on energy transitions highlighted the fact that faster resource transitions tend to be the preserve of small economies with suitable resources and policies.17 Large nations with complex energy systems tend to perform less well on the EAPI.
Performance of these countries on the EAPI reflects policy choices and investments over time, as well as varying resource endowments, geographical conditions and other boundary constraints that also have influence. Brazil (23rd) for example is the highest performing of the BRICs nations, reflecting its diversified energy mix and rapidly growing domestic oil and gas sector. With an electricity supply dominated by hydropower, Brazil achieves a comparatively high score for environmental sustainability. The Russian Federation’s scores (39th) on the EAPI reflect the prevalence of domestic oil and gas in its energy sector which, while supporting economic growth through export revenues and affordable energy, comes at the cost of environmental sustainability. Only 9% of Russia’s Total Primary Energy Supply is from alternative energy (compared to 26% for India and 12% for China). In contrast to these resource-rich nations, the third largest economy globally, Japan (32nd), depends heavily on energy imports (94% of net energy use). The country has some of the highest electricity prices among Organisation for Economic Co-operation and Development nations. It ranks among the lowest of the major economies on environmental sustainability, with only 5% of its total energy supply coming from non-carbon sources. Japan’s fuel imports as a percentage of GDP, the costs of energy and the energy-related CO2 emissions have risen following the Fukushima accident, due to Japan’s increasing energy imports to compensate for the lack of nuclear energy capacity.
These nations provide some compelling illustrations of the scale and extent of the energy transitions under way. Germany’s (19th) Energiewende clearly highlights the benefits and risks associated with energy transition. Having decided to phase out nuclear energy production by 2022, and aiming to reduce emissions by 80% by 2050, Germany has built impressive capabilities across the renewables value chain. During the first half of 2014, 31% of electricity production in Germany came from renewable sources.18 But this has come at a cost: the EAPI highlights increased electricity prices for industry, and German households pay the second highest prices in Europe. Given low carbon prices, the interconnectedness of Europe’s markets and Germany’s phase-out of nuclear energy, the increased production from Germany’s carbon-intensive lignite plants has led to an increase in the country’s CO2 emissions and has influenced the overall energy mix in Europe. While Germany scores the highest on energy intensity of its economy, there is still room for progress on this indicator when compared to the top 10 performing nations.
In the US (37th), the surge in shale gas production has made it the largest natural gas producer in the world. Increased domestic production decreased net oil imports by 56% between 2005 and 2014. This is reflected in the share of fossil fuel imports as a percentage of GDP, which dropped to 1.3% of GDP from 2.8% in 2008. This is having a profound impact on national competitiveness; a 10% reduction in the relative price of natural gas in the United States led to an improvement in US industrial production (relative to that of the Euro area) of roughly 0.7% after one and a half years.19 Despite significant improvement on the CO2 intensity of its electricity sector, due to fuel switching from coal to electricity in recent years, more efforts are required to address the intensity of its electricity sector; the US gets a low score (0.50) for this indicator, with some of the highest levels of emissions among major advanced economies.20 The recent deal announced with the government of China on cutting emissions is a step in the right direction.
While major economies face some similar challenges, a number of chokepoints stand out for emerging economies in particular. Scores on carbon emissions and energy intensity reflect the scale of the challenge of transitioning to a low-carbon and efficient energy architecture. Russia’s lowest scores overall are for these two indicators, and China and India – the two largest emitters of CO2 emissions per kWh in the electricity sector – also perform poorly on these indicators. For India (95th), the EAPI highlights the urgent set of challenges Narendra Modi faces in turning the country’s energy system around. India scores the lowest for energy access and energy security when compared to other BRICs nations (0.61 compared to an average of 0.72 for the BRIC cluster). One quarter of Indians lack access to electricity, and more than half still use solid fuels for cooking. In response, Modi has set ambitious targets for energy access (providing electricity to 300 million Indians currently without electricity) and renewables. This will likely help address the CO2 emissions intensity of India’s electricity sector, which is one of the highest among major economies. However, an already high dependence on imports is increasing, with imports of coal close to exceeding those of China.21 Addressing the growing gap between domestic demand and production to limit the increase in energy import bills will certainly be a core challenge for India in coming years.
China (89th) faces perhaps the most challenging energy transition of all. Energy use has nearly tripled since 2000, mostly due to the use of coal. While strong economic growth has accompanied this phenomenal increase, it has also resulted in a highly energy-intensive economy, high levels of air pollution, and an increasing need to import energy. Changing direction is a significant challenge, closely connected to efforts to restructure the economy overall. The government has already taken significant steps, and China is the world leader in many aspects of the transition. For example, in 2013, China accounted for 21% of all global renewable investment, adding more than five times the amount of wind and nearly twice as much solar as any other country.22 It has the world’s largest installed capacity of wind farms, is the world’s leading manufacturer of solar photovoltaic (PV) modules, and produces more hydroelectricity than any other country.23 The Action Plan for Controlling Atmospheric Pollution includes 10 measures to improve air pollution management, many of which are directly linked to the energy sector.
The need to become more energy efficient, more diverse and less carbon-intensive is especially acute for major emerging economies. Governments’ responses to these pressures through energy reforms are the focus of the next section.