A Global Village
Issue 4 » Energy & Environment

Exclusive Interview with Dr. Fatih Birol

Chief Economist at the International Energy Agency

Neave O’Clery & Sumana Chaturvedula, Imperial College London

20 January 2010

Dr. Fatih Birol is Chief Economist at the International Energy Agency, with overall responsibility for the organisation’s economic analysis of energy and climate change policy. He oversees the annual World Energy Outlook, the flagship publication of the IEA, and is recognised as the most authoritative source for energy analysis and projections. He was recently named by Forbes Magazine as the world’s fourth most powerful person in terms of influence on the world’s energy scene. Prior to joining the IEA in 1995, Dr. Birol worked for six years at the Organisation of the Petroleum Exporting Countries (OPEC) in Vienna. A Turkish citizen, Dr. Birol was born in Ankara in 1958. He earned a BSc degree in power engineering from the Technical University of Istanbul and he received his MSc and PhD in energy economics from the Technical University of Vienna.

Neave O’Clery and Sumana Chaturvedula met Dr. Birol during a recent visit to Imperial College for an event hosted by the Grantham Institute for Climate Change, and asked him about the impact of rising oil prices on the global economy, the effect of subsidies on fuel demand and the crucial role of the US and China in combating climate change.

Can you tell us about the trend towards increasing oil prices and the repercussions for the global economy?

Brent oil prices today cost a $100 and, as such, I believe it is a risk for the global economy. First of all, it is a risk for OECD countries, and industrialised countries, such as Europe and Japan and the United States, because they are now in the process of recovery. The economy is still very fragile and with higher prices we see a weakening of the trade balance, because they have to import more and they have to pay more. Secondly, there will be more pressure on the inflation. In many countries, including the UK, inflation numbers are going up so these are the first countries that will be heavily affected. But more importantly, at least for me, it is the developing countries in Africa, Asia and Latin America that will be much more seriously affected. And according to our calculations, if oil prices remain around $100 – where they are now – about one percentage point of the GDP will be used in order to compensate for their oil import bill increase, and that is bad news. 

The third group of countries is the oil producing countries, the oil exporters in the Middle East and elsewhere, and I believe it is also not good news for them as well. It may be seen that for the oil producers the higher the price the better it is for them, but if the economies of their main clients in court are crushed or weakened, namely the European countries, or United States, then they will need less energy for their economic activities. They will drive less, they will use less energy and so on, therefore they will need to import less oil from the oil exporting countries, so at the end of the day this may not be good news for them as well. So one should think twice about what one is opting or wishing for. To sum up, I think the prices are too high now, and they may go even higher and as such this is not good news for the global economy, or for anyone on this planet.

Many have argued that subsidies for fuels are driving prices down. What do you feel about the impact of subsidies on the global market within the context of consumer demand and climate change?

There are, as we have discussed in our World Energy Outlook report, huge subsidies for fossil fuels, oil, gas and coal, mainly in the developing countries. And these subsidies provide incentive for the people to use more energy and to use energy in a wasteful manner. If something is cheap, whatever we have at home, we use it less carefully compared to something that is more expensive; everything, when we use a shampoo, when we use a perfume, when we use whatever, it is always like that. And therefore (energy) is artificially (cheap), and global energy demand goes (up). This is not good news for energy efficiency and, since most of the subsidies are for fossil fuels, it leads to increase in carbon dioxide emissions, which is bad news for climate change. 

In 2020, a 20% or 30%
reduction for Europe is
equal to two weeks of emissions
of China ... when I put it in a
global context, it is peanuts

Some countries say that we have these subsidies in order to protect the poor, and we looked into that and we have seen that 85% of the subsidies go to medium and high-income levels, because they are the ones who use more energy. Only 15% is used by poor segments of the population, and so it may not be a bad idea to phase out the subsidies in general and to provide assistance for the poor in different ways, rather than just subsidising energy prices. The poor should be helped, but perhaps through different channels than subsidising fossil fuel energies.

You say in your World Energy Outlook report that combined the US and China will need to be responsible for 50% of abatement in carbon dioxide emissions for the 450ppm goal to be reached. What exactly do they need to do in the near future (to achieve this), and is there the political will? Do you believe they will manage to reach these targets?

Now, there is no single government in the world who doesn’t want to find a solution to the climate change problem. However, the issue is, everybody thinks that the other one should do more than they themselves; this is the problem. There are some countries that are very willing to reduce the CO2 emissions, such as European countries. In Europe, for example, there is a discussion about whether or not CO2 emissions should be cut by 20% or 30%. I find this discussion on one hand very important – philosophically and morally very important – but when I put it in a global context, it is peanuts. The difference between, in 2020, a 20% or 30% reduction for Europe is equal to two weeks of emissions of China, which is nothing. So therefore we should look at which countries can change the game. And I see two countries here, namely the United Stated and China. But, I know that both of these countries have serious considerations about which way they should go and how they should reduce emissions, but I can tell you that if our goal is to limit temperature increase by two degrees Celsius, without China and the United States making major efforts we have no chance whatsoever, (no matter what) happens in the other countries.

How do you see the future of nuclear power playing a role in the energy mix in the short to medium term?

I think nuclear power should play an important role in the global energy mix, as it generates electricity at low cost, doesn’t emit carbon dioxide emissions and (supports) energy security by diversifying the energy mix. But I see significant challenges, especially in the OECD countries, to see a major breakthrough for nuclear energy.

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