"The role of prices in the energy context is declining," Fatih Birol, the IEA's chief economist, said in Brussels on 22 May.
Since 2004, European consumers have been paying a 'shadow carbon price' of approximately €85 per tonne of CO2 in the form of higher taxes on vehicle fuels, for example, but the higher prices have had little impact on consumer behaviour, Birol told a small audience during a lecture organised by the Lisbon Council, a think tank.
"We should not leave everything to the market," he said.
The EU is currently reviewing its Emissions Trading Scheme (EU ETS) for the period after 2012, when the bloc's flagship carbon market is set to be re-launched with a tighter cap on EU-wide CO2 emissions. Brussels hopes the scheme will push the carbon price, meaning the cost per tonne of CO2 emitted, to a level that will encourage industries to invest in clean technologies.
But carbon pricing alone will be insufficient to put the EU on a cleaner development path, according to Birol. Particularly in a context of economic growth and greater individual spending power, individuals will not necessarily choose 'greener' habits but may simply agree to pay a higher price for energy, he said.
This dynamic is particularly applicable to China, Birol noted, where government fossil fuel subsidies and steadily rising incomes have kept energy demand and spending on the rise despite record prices for crude oil, which reached an all-time high of $135 per barrel this week.
The IEA economist offered several recommendations to EU policymakers, beginning with the need for more energy efficiency measures, where the EU needs to triple its efforts, he said. In addition to calling for more renewable energy use and the construction of more nuclear power reactors, Birol also emphasised the need for support from EU governments in the development of carbon capture and storage (CCS) technologies.
The technical and financial challenges currently blocking the uptake of CCS can be overcome "if governments take the issue seriously," he said. Birol signalled that the IEA will press G8 leaders on the issue of CCS development during their upcoming summit on 7-8 July in Japan.
