There is a big difference of opinion on how quickly the world will transition away from oil and gas to renewables but what is clear in the latest report from the International Energy Agency (IEA) the ride will be bumpy and not enough is being done now to meet the most ambitious targets.
In its World Energy Outlook (WEO) released earlier than normal in anticipation of the start of today’s COP26 meeting, the IEA said liquids and gases are caught between scenarios. Oil demand, for the first time, goes into eventual decline in all the scenarios examined in the WEO-2021, although the timing and speed of the drop vary widely.
In the Stated Policies Scenario (STEPS) of governments post the 2015 Paris agreement, the high point in demand is reached in the mid-2030s and the decline is very gradual. In the Announced Pledges Scenario (APS), a peak soon after 2025 is followed by a decline towards 75 million barrels per day (mb/d) by 2050.
The WEO predicts that natural gas demand increases in all scenarios over the next five years, but there are sharp divergences after this.
“Many factors affect to what extent, and for how long, natural gas retains a place in various sectors as clean energy transitions accelerate. The outlook is far from uniform across different countries and regions,” the report reads.
Energy Minister Stuart Young recently told the Senate that natural gas was going to be around for a long time as the world has seen that there needs to be a more deliberate approach in the transition to renewable energy.
The IEA warned that there is a looming risk of more turbulence ahead for energy markets.
“The world is not investing enough to meet its future energy needs, and uncertainties over policies and demand trajectories create a strong risk of a volatile period ahead for energy markets. Transition-related spending is gradually picking up, but remains far short of what is required to meet rising demand for energy services in a sustainable way. The deficit is visible across all sectors and regions. At the same time, the amount being spent on oil and natural gas, dragged down by two price collapses in 2014-15 and in 2020, is geared towards a world of stagnant or even falling demand for these fuels,” the WEO stated.
IEA analysis has repeatedly highlighted that a surge in spending to boost deployment of clean energy technologies and infrastructure provides the way out of this impasse, but this needs to happen quickly or global energy markets will face a turbulent and volatile period ahead.
Clear signals and direction from policy makers are essential it said, if the road ahead is paved only with good intentions, then it will be a bumpy ride.
Transitions it said can offer some shelter for consumers against oil and gas price shocks. Energy transitions can provide a cushion from the shock of commodity price spikes, if consumers can get help to manage the upfront costs of change.
“As electricity takes up a progressively larger share of household energy bills, governments have to ensure that electricity markets are resilient by incentivising investments in flexibility, efficiency and demand-side response.
“Across all scenarios, the share of variable renewables in electricity generation expands to reach 40-70% by 2050 (and even higher in some regions), compared with an average of just under 10% today,” the report noted.
According to the IEA a new energy economy is emerging one that is more electrified, efficient, interconnected and clean.
It used the example of 2020, when economies bent under the weight of COVID-19 lockdowns, renewable sources of energy such as wind and solar PV continued to grow rapidly, and electric vehicles set new sales records.
“Its emergence is the product of a virtuous circle of policy action and technology innovation, and its momentum is now sustained by lower costs. In most markets, solar PV or wind now represents the cheapest available source of new electricity generation. Clean energy technology is becoming a major new area for investment and employment—and a dynamic arena for international collaboration and competition,” the report read.
The IEA said every data point shows the speed of change in energy can be countered by another showing the stubbornness of the status quo. It said the rapid but uneven economic recovery from last year’s COVID-induced recession is putting major strains on parts of today’s energy system, sparking sharp price rises in natural gas, coal and electricity markets.
For all the advances being made by renewables and electric mobility, 2021 is seeing a large rebound in coal and oil use. Largely for this reason, it is also seeing the second-largest annual increase in CO2 emissions in history.
“Public spending on sustainable energy in economic recovery packages has only mobilised around one-third of the investment required to jolt the energy system onto a new set of rails, with the largest shortfall in developing economies that continue to face a pressing public health crisis. Progress towards universal energy access has stalled, especially in sub-Saharan Africa. The direction of travel is a long way from alignment with the IEA’s landmark Net Zero Emissions by 2050 Scenario (NZE), published in May 2021, which charts a narrow but achievable roadmap to a 1.5 °C stabilisation in rising global temperatures and the achievement of other energy-related sustainable development goals.”
The report noted that the pressures on the energy system are not going to relent in the coming decades as the energy sector is responsible for almost three-quarters of the emissions that have already pushed global average temperatures 1.1 °C higher since the pre-industrial age, with visible impacts on weather and climate extremes. The energy sector has to be at the heart of the solution to climate change it added.
At the same time, it noted that modern energy is inseparable from the livelihoods and aspirations of a global population that is set to grow by some 2 billion people to 2050, with rising incomes pushing up demand for energy services, and many developing economies navigating what has historically been an energy- and emissions-intensive period of urbanisation and industrialisation. Today’s energy system is not capable of meeting these challenges; a low emissions revolution is long overdue.
It added that in the run-up to COP26, many countries have put new commitments on the table, detailing their contributions to the global effort to reach climate goals; more than 50 countries, as well as the entire European Union, have pledged to meet net zero emissions targets. If these are implemented in time and in full, as modelled in detail in its new Announced Pledges Scenario (APS), they start to bend the global emissions curve down, says the IEA report.
“The APS sees a doubling of clean energy investment and financing over the next decade, but this acceleration is not sufficient to overcome the inertia of today’s energy system. In particular, over the crucial period to 2030, the actions in this scenario fall well short of the emissions reductions that would be required to keep the door open to a Net Zero Emissions by 2050 trajectory. One of the key reasons for this shortfall is that today’s climate commitments, as reflected in the APS, reveal sharp divergences between countries in the pledged speeds of their energy transitions. Alongside its achievements, this scenario also contains the seeds of new divisions and tensions, in the areas of trade in energy-intensive goods, for example, or in international investment and finance.” The report read.
It said looking sector-by-sector at what measures governments have actually put in place, as well as specific policy initiatives that are under development, reveals a different picture, which is depicted in its Stated Policies Scenario (STEPS). This scenario sees an accelerating pace of change in the power sector, sufficient to realise a gradual decline in the sector’s emissions even as global electricity demand nearly doubles to 2050. However, this is offset by continued growth in emissions from industry, such as the production of cement and steel, and heavy-duty transport, such as freight trucks.
It said a successful, orderly and broad-based energy transitions depend on finding ways to lessen the tensions in all countries. the IEA noted the need to do more by embarking on at least four key measures.
The four measures are:
a) A massive additional push for clean electrification that requires a doubling of solar PV
and wind deployment; a major expansion of other low-emissions generation, including the use of nuclear power where acceptable; a huge build-out of electricity infrastructure and all forms of system flexibility, including from hydropower; a rapid phase out of coal; and a drive to expand electricity use for transport and heating. Accelerating the decarbonisation of the electricity mix is the single most important lever.With improved power market designs and other enabling conditions, the low costs of wind and solar PV mean that more than half of the additional emissions reductions could be gained at no cost to electricity consumers.
b) A relentless focus on energy efficiency, together with measures to temper energy service demand through materials efficiency and behavioural change.
c) A broad drive to cut methane emissions from fossil fuel operations. Rapid reductions in methane emissions are a key tool to limit near-term global warming, and the most cost-effective abatement opportunities are in the energy sector, particularly in oil and gas operations. Methane abatement is not addressed quickly or effectively enough by simply reducing fossil fuel use; concerted efforts from governments and industry are vital to secure the emissions cuts .
d) A big boost to clean energy innovation. This is another crucial gap to be filled in the 2020s, even though most of the impacts on emissions are not felt until later. All the technologies needed to achieve deep emissions cuts to 2030 are available. But almost half of the emissions reductions achieved in the NZE in 2050 come from technologies that today are at the demonstration or prototype stage. These are particularly important to address emissions from iron and steel, cement and other energy-intensive industrial sectors – and also from long-distance transport.
According to the IEA getting the world on track for 1.5 °C requires a surge in annual investment in clean energy projects and infrastructure to nearly USD 4 trillion by 2030.
It warned the costs of inaction on climate are immense, and the energy sector is at risk.
Extreme weather events over the past year have highlighted the risks of unchecked climate change, and the energy sector will feel the impacts. Today, the world’s energy infrastructure is already facing increasing physical risks related to climate change, which emphasizes the urgent need to enhance the resilience of energy systems. We estimate that around one quarter of global electricity networks currently face a high risk of destructive cyclone winds, while over 10% of dispatchable generation fleets and coastal refineries are prone to severe coastal flooding, and one-third of freshwater-cooled thermal power plants are located in
areas of high water stress.