COP26: IEA chief Fatih Birol talks energy and climate change on the Radio Davos podcast

Energy - the fuel we use for heating, cooling, manufacturing, transport and so on - accounts for a third of our greenhouse gas emissions.

If we want to tackle climate change - we have to tackle energy. So on this Radio Davos podcast we do just that, with two interviews: the head of the International Energy Agency who says the COP26 climate summit must send an "unmistakeable signal" to investors to shift their money into clean energy; and the head of Octopus Energy, a British renewable energy provider that is using data and machine learning to speed up the transition to green energy.

Here are edited transcripts of the two interviews:

In the World Energy Outlook 2021, there's a massive increase in greenhouse gas emissions. Have we missed the opportunity to 'build back better' out of the pandemic?

Our numbers show that the this year, 2021, is a very peculiar year because we see two opposing trends. On one hand, we see that the momentum to address climate change has never been greater in the world. Many governments around the world - the U.S., Canada, all EU countries, UK, Japan, China - they came up with strong commitments to reduce their emissions. So did many companies around the world. And when you look at the public, there is a great, great support - [from] governments, industry - to address this issue. This is one trend. The second trend is, however, again in 2021, this year, we are seeing a huge increase in global emissions - the second largest increase in history ever. So there is a bit of a gap between the rhetoric and what is happening in real life. This is a worrying trend. And as such, the longer we [take to] bend the emissions trend downwards, the less chance we will have to address our climate challenges and bring the temperature trajectory to a level that can provide us a liveable planet.

So what is it that needs to happen this decade?

If the governments fulfil their pledges completely, we are still going to see a temperature increase of 2.1 degrees Celsius, significantly higher than 1.5 degrees that the scientists tell us is the maximum that we can have. The difference of 0.6 degrees is not something that you just take your jacket off and adjust to the new environment, it will have huge implications for extreme weather events. Much more frequent extreme weather events, much more intense extreme weather events and so on. What needs to happen is, first of all, more countries need to make commitments, and existing pledges need to be much more ambitious than they are today. I very much hope that the Glasgow meeting will be a meeting where we hear from several governments around the world, especially those in developing Asia and elsewhere, [that] come up with stronger pledges than what they have, and the ones who have not made commitments, they make some commitments and implement them.

Let me quote from your report: "Today's climate pledges would result in only 20% of the emissions reductions by 2030 that are necessary to put the world on a path towards net zero by 2050." It's still an absolute mountain to climb, isn't it?

We are far, far [from] what we should be doing. But the issue is, this next 10 years is critical. As a world, we have all the technologies with us today in order to make much more ambitious energy policies. What are those? Much more renewables, solar, onshore wind, offshore wind, hydropower, energy efficiency - using energy more efficiently - and electric cars. These are already with us. We just need to see a very strong expansion of the existing technologies in the next 10 years. And if we are not able to do that, the job after that will be much more difficult, if at all possible.

So what is standing in the way of that progress? Is it just that this is the way the market is built, this is the way the market works, and it's so hard to change a big global market like the energy market?

In my view, if we leave everything to the markets and market developments, we will not have the slightest chance to reach our targets. So therefore governments are in the driving seat here. What could accelerate progress? What could accelerate the transition? Maybe two things: One: government regulations, that can be regulations in terms of the putting standards and norms for efficiency standards of [eg.] television screens or air conditioners. Or it can be incentives in order to provide a bit of encouragement for consumers to buy better products, such as electric cars versus traditional cars. This is one type of government policy needed.

The second one is an area that we should never forget: the big part of emissions growth comes from the emerging world if we look at the next 10 years. And the amount of clean energy investments going to these countries is rather bleak - very little. About 20% of all clean energy investments go to emerging markets. So therefore the rich countries around the world should provide some type of financial assistance, support to emerging countries to give a kick-off incentive, kick-off capital in order to play a catalyst role for the clean energy investments. In the absence of that, what countries do in, for example, in Europe has less of an impact on global trends. One tonne of CO2 going into the atmosphere from Mumbai or from Detroit or from Geneva or from Johannesburg, it has the same effect on everybody. Emissions don't have a passport. So from that point of view it is very important, in my view, that the rich countries provide financial support to emerging countries. And it is one of my main expectations from the Glasgow meeting that there is a financial architecture built and provides this support for the emerging countries. So together with the government intervention, regulations, incentives, I would hope to see that emerging market financing plays a role. These two areas are the key areas in order to accelerate the clean energy transition at the global level.

The World Economic Forum's Global Future Council on Clean Electrification has put out a report called "Getting to Net Zero: Increasing Clean Electrification by Empowering Demand". Is electrification the key to combating climate change?

It is one of the main answers because the electricity sector alone today is responsible by far for the largest amount of emissions. About 40% of global emissions come from electricity generation. When it comes to advanced economies, for example, G7 countries, they are about to announce zero-emission electricity generation by 2030. This is good. This is very important. But we need to look at the rest of the world as well. Again, emissions don't have a passport. Let me give you one example: China, India and Indonesia: three big countries. All of them have electricity generation 60-70% of their total electricity generation [comes from coal] and they make up more than 40% of the global population. As long as we cannot decarbonise, clean up, their electricity generation, it will be very difficult to see a big change in the global electricity system. So therefore while we should be happy and congratulate developed countries, including the G7 leadership, to have net zero generation of electricity by 2030 or around, it is very important to keep an eye on what will happen in developing countries where the bulk of the electricity generation comes from coal today.

Those countries are often big manufacturing bases producing goods that are then traded around the world. But at the moment, the price of their carbon emissions isn't included in the price of those goods. How important is it to put a price on carbon emissions and how would you see that actually happening in reality?

We see that putting a price on carbon in Europe works well. There are difficulties here and there, but the main trend is it seems that it is working. China made some steps in that direction. And in theory it is the best way to address the problem. Putting a price on carbon. Economic theory tells us that this would be the best and easiest solution. However, when it comes to real life, I have difficulties to believe that we can implement carbon pricing schemes in many parts of the emerging world, and the it may not be possible in the real-world context. So therefore I would not put all the bets on carbon pricing. There are many other areas, in addition to that, we can much more easily use to reduce emissions in the developing world. This ranges from using renewables, which are becoming the cheapest source of electricity generation [in] many parts of the world - to some other technologies, such as, in some countries, nuclear power, or improving the energy efficiency of electricity-consuming equipments around the world.

Carbon pricing: yes, very good idea. But in some cases, especially in emerging countries, difficult to implement today. Therefore, we need to look at other options ranging from government regulation to incentivising renewables, hydropower and other low-carbon technologies.

What are your hopes and fears for COP26?

Too many hopes, too many fears! If I have to pick one: I would very much like to see from the COP meeting that the leaders of nations come together in Glasgow and, in a united way, give a message to the world saying: investors, please see we are determined here to build a clean energy future. Therefore, if you invest in dirty energy, you are risking to lose money. We are sending the world an unmistakeable signal. If you invest in the clean energy options, you can make handsome profits. Please take our unmistakeable signal as the sign of our determination to build a clean energy future. This is my hope from COP26 in Glasgow this year.

How has the emergence of renewables transformed the electricity market?

The biggest issue is that the world of renewables needs us to completely invert the way energy works - from having a small number of large, easily controlled fossil fuel plants on a grid, to having thousands or millions of generation points that are dependent on sunshine, wind and other renewable factors. At the same time, we're moving from a world where the energy supply to someone's home is kind of predictable but unshiftable, to a world where we've got electric vehicles and increasingly decarbonised heating systems that really mean you have these very big shiftable loads of consumption. If we use technology, we can use all of this variability to our advantage - very much like Uber - matching supply and demand in real time. If, on the other hand, we're stuck with those outdated systems, we have to try and make the physics behave like fossil fuels, we'll have a very expensive transition.

So the way the grid runs in most developed countries does not really work that well with the new way of generating energy through renewables. Could you tell us exactly why that is?

There are two things. The first thing is that if you look at pretty much any country, they'll have control rooms to their grid that look very much like a minicab office. You literally have blokes in front of computers with a mouse turning power stations on and off. And it really needs to be far more like Uber, where you just have vast amounts of real-time data and machine learning optimising the system in ways that humans can't. And the reason we need to do that is that fundamentally renewable energy is cheaper - there are no input costs once you've built the generation - wind, solar and so on - it is much cheaper than fossil fuels to run. And so what we need to do to capitalise on that cheap energy when it's available is use this technology to shift supply and demand around in a highly fluid way. Technology is going to be great at that.

So how does Octopus Energy do that? What data do you use? And to do what exactly?

Today we've got tens of thousands of customers who've got things like smart energy tariffs, where in real time their smart metre and things like their electric vehicle charging hardware are talking to each other via the internet to optimise the point when we're charging the car. And we'll charge the car when it's sunny and when it's windy, when there is a lot of renewable available and when renewable prices are cheap. And we will choose not to charge the car when green electrons are less abundant, when grid prices are high. Clever systems can even take into account things like your driving patterns. So they'll make sure that you can have enough electricity whenever you want to drive. But within that they'll be optimising based on green energy.

You can imagine over the next decade, electric vehicles become the norm and decarbonised heating becomes the norm. This is going to be a colossal opportunity to be using that green electricity when it's available. And really, what you want to be doing is taking the data from every single wind turbine and solar farm, every single bit of micro weather forecasting. And then you can be optimising it at any moment in time, whether you're creating hydrogen and you're going to be putting it into fuel cells to be used in trucks or industrial processes, or whether you're charging a battery at grid level or at the end of someone's street or in someone's house. Now all of that kind of optimisation, it's normal in the world of the internet. When you're downloading a web page, there's already systems throughout the internet that have taken a lot of that data, compressed it, stored it in the right place, ready for you to use it. We now need to treat energy the same way we treat data and the internet.

To peel back all that high tech stuff, at its most basic: You've got an energy grid. When everyone arrives home from work, the TV goes on, the electric oven goes on, the lights go on, the heating goes on. There's a massive peak in demand. At 3 in the morning, none of those things are happening, but the grid still has a lot of energy running through it. And therefore it's cheaper if a company like yours is able to make some of those things happen in the middle of the night, because it doesn't matter when you charge your car as long as it's parked and plugged in somewhere? That's the kind of thing you're talking about, right?

It really is. It's as simple as that. Most of the time our grid is massively under-utilised, it's got tons of spare capacity. So a bit like we can get cheap holidays by using hotel rooms that would otherwise have been empty, flying on airline seats that would otherwise only have been half occupied. So we can increasingly take advantage of the spare capacity in the grid by using it for things like electric vehicle charging, where the time doesn't matter. In a renewable world, we need to think about the fact that electricity availability is also very variable. And so you need smart tech to choose the right times to do stuff because it's not as simple anymore as just 'the middle of the night'. For example, in the UK, there's a big peak in solar energy around about midday during summer days. So that's a great time to grab electricity and use it for things like charging cars.

In what way, though, can this help tackle the climate crisis?

It's critical. We've got two ways we can go renewable globally. Going renewable is critical, obviously, to decarbonising society. If we can make our system efficiently use these variable, intermittent sources of electricity - renewables - then decarbonising electricity will actually cut energy costs. If, on the other hand, we don't use it intelligently and we have to build massive battery farms next to wind farms, for example, then going renewable is going to increase the cost of energy and in doing so will slow down decarbonisation. So I think for those of us who want citizens to embrace the journey to decarbonisation, making it cheaper than today's world is going to be an incredibly helpful enabler for that.

Is the data you use open information? If I want to come into competition with you and set up against you, will I find it easy to find that data?

Some of it's open. Anyone can access weather data and can pay extra to access very granular data. What you want to be doing is creating entirely new intelligence that can be used to drive down the cost. Because we're moving away from the world at which the grid can just turn a coal power station on and off to meet peak time in the evening when everyone is watching TV. We've moved away from that world. The kind of data I am talking about it both ambientally available, it's available from your customers, and you generate a lot of it yourself. We employ dozens of data scientists, we've got lots of machine learning and artificial intelligence, and we employ probably 150 software developers. They're all building the tech that enables us to make green electricity as cheap and easy to use as possible.

The energy sector in most countries is very centralised. If you're coming in as a 'disruptor', is that going to work, or are you just going to be nibbling on the edges of this great big government regulated thing?

I look at it a bit like the internet. Governments got us to the point where the internet was available - this incredible technology - and that's an astonishing achievement. They then opened it up to enterprise, and that's what's transformed the world as we know it. And I think we now need to be thinking about energy systems in the same way.

Government backing is what got renewables to the point where they're now typically cheaper than fossil fuels. But to unleash the full power of that, to drive down costs and to go renewable faster than anyone imagined, we should now unleash that kind of creative energy, that competitive pressure from the private sector. And that can be innovative companies, it can be existing companies, it can be start-ups in tech.

What have been the stumbling blocks or what have been the great open doors that you've just walked through, to getting a foot on that ladder, in an area that is quite dominated by certain big players?

In any disrupting sector, it's a race between new companies who've got innovation technology that might improve the way things are done, and the incumbents who've got legacy and bureaucracy and lumbering costs and lack of innovation. And the race really is between the new startups to get big and for the incumbents to get efficient. We saw that in airlines. When you look at airlines in Europe, the flag carriers reformed, consolidated, and so on, to become better business than they had been, as the best of the low-cost airlines grew to tremendous scale. And now you've got a market which is dominated by a combination of both of these kinds of companies: the best of the flag carriers and the best of the low-cost airlines.

So let's talk outside of the UK. The UK liberalised the energy sector in the 1980s or early 90s. It's not been the case around the world. Do you see what you're doing having scope to expand around the world or that other companies could do similar things around the world?

Increasingly we're able to operate globally. Countries which can deregulate their energy retail have got a greater chance of getting citizens to embrace the move to renewables. Because if you have an active, customer-focused retail sector in energy, you've got companies that will be bringing in special offers when the sun is shining, cheap electricity when the wind's blowing to charge you car - all automated, you don't need to think about it. And now we need to be starting to challenge countries to think about opening grids up to competition the way that India has. And then how do you digitise the grid? Maybe running it almost like the 'internet of electricity'. So you treat the grid as wires, but you're using software and algorithms to determine what's going on. When we talk to governments in countries we're entering, they really embrace this approach. Who doesn't want cheaper green electricity, who doesn't want citizens to see benefit from going carbon-free rather than seeing it as an extra cost on the bill?

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