Rising CO2 emissions are driving “profound shifts” in the global energy system, paving the way for a new wave of investment, according to the latest research by the International Energy Agency (IEA).
The latest IEA World Energy Outlook 2019 (WEO) outlines several scenarios for future development and in nearly all of them envisages a sharp rise in renewable spending.
The WEO is one of the most heavily scrutinised documents in the annual calendar of publications, comprising hundreds of pages of analysis and based on thousands of datapoints, drawn from governments around the world, as well as the IEA’s World Energy Model.
“The World Energy Outlook does not aim to provide a view on where the energy world will be in 2030 or 2040. This will depend on hugely important choices that lie ahead. What the WEO-2019 does aim to do is to inform decision-makers as they design new policies or consider new investments or shape our energy future in other ways. It does so by exploring various possible futures, the ways that they come about, the consequences of different choices and some of the key uncertainties," the report's authors note.
Within its modelling the IEA covers a central “Stated Policies Scenario” (STEPS), formerly known as the “New Policies Scenario”, as well as a Sustainable Development Scenario (SDS) which sets out what would be required to give a 50% chance of limiting warming to 1.65C, which the IEA describes as “fully in line with the Paris Agreement"
"In the STEPS scenario, which aims to mirror the outcome of policies already set out by governments, a surge in wind and solar power would see renewable sources of energy meeting the majority of increases in global energy demand. But a plateau for coal, along with rising demand for oil and gas, would mean global emissions continue to rise throughout the outlook period to 2040," the report's authors note.
It says the SDS would require a “significant reallocation” of investment away from fossil fuels towards efficiency and renewables, as well as the retirement of around half the world’s fleet of coal-fired power stations and other changes across the global economy.
The IEA has this year also explored, but not modelled in detail, what it would take to limit warming to no more than 1.5C above pre-industrial temperatures, the aspirational goal of the Paris Agreement.
The IEA says that it does not make forecasts in its outlook. Instead, it presents the consequences of societal energy “choices” in terms of CO2 emissions and other outcomes. The report explains:
Three alternative “futures
The outlook spans three alternative “futures”, set out in the introduction and described in a blog, published ahead of the report’s release, on “understanding the WEO scenarios”.
The outlook’s central scenario is STEPS, which has “the intention to ‘hold up a mirror’ to the plans and ambitions announced by policymakers without trying to anticipate how these plans might change in future”. The IEA does not assume that all policy goals will be met, however:
“[A]mbitions are not automatically incorporated into the scenario: full implementation cannot be taken for granted, so the prospects and timing for their realisation are based upon our assessment of the relevant regulatory, market, infrastructure and financial constraints.”
The second WEO future is the “Sustainable Development Scenario” or SDS. This is a different type of scenario that starts from sustainable development goals on energy access, air pollution and CO2 emissions before working backwards to show what would be needed to reach them.
Finally, the “Current Policies Scenario” (CPS) would see governments renege on their stated goals and intentions, with the energy system guided only by policies and laws that are already in place.
This year’s outlook continues to feature the CPS in its text, charts and data. But it is afforded lower priority, with the phrase “current policies scenario” used 102 times over 810 pages – far less often than the 793 mentions of the STEPS or the 535 for the SDS. The outlook says the CPS highlights the consequences of inaction and the level of effort required to meet even the STEPS pathway.
(For comparison, the CPS is mentioned 340 times in the WEO 2010, against 981 uses of the then-central NPS and 745 mentions of the “450 scenario”.)
On the basis of stated plans and policies around the world, the IEA says that global energy needs will continue to rise by 1% per year until 2040, adding demand equivalent to China’s current total.
This growth is driven by a rising population – based on the UN’s “medium” projections to reach 9 billion people by 2040 – and an expanding economy, with global GDP increasing by 3.4% a year, per International Monetary Fund projections.
The rate of energy demand growth is around half the average rate of 2% seen since 2000, the IEA says, due to shifts towards less energy-intensive industries, energy efficiency gains and “saturation effects” – for example, where demand for cars reaches a peak.
Some 49% of demand growth would be met by renewables in the STEPS, as shown with the red line in the chart, below. Gas use is also expected to rise rapidly (blue), overtaking coal to become the second-largest source of energy after oil and meeting a third of the rise in overall demand.
Global primary energy demand by fuel, millions of tonnes of oil equivalent, between 1990 and 2040. Future demand is based on the STEPS. Other renewables includes solar, wind, geothermal and marine. Source: IEA World Energy Outlook 2019. Chart by Carbon Brief using Highcharts.
In contrast to the rapid gains for gas and renewables, the IEA STEPS sees coal use plateau and then decline slightly from today’s levels (black line above). This confirms last year’s analysis that global coal demand peaked in 2014.
The IEA now also suggests that oil demand will start to level off by the 2030s (orange line) as a result of vehicle fuel-efficiency gains and the rise of electric vehicles (EVs), which see passenger car oil demand peak in the “late 2020s”.
Oil demand for freight, shipping, aviation and chemicals “continues to grow”, the IEA says, with the growing popularity of SUVs another potential factor propping up demand. (Notably, documentation for the Saudi Aramco share sale also has global oil demand levelling off from around 2035.)
Some two-thirds of the increase in global energy demand to 2040 comes from the Asia Pacific region, under the IEA STEPS. India’s energy demand would double making it the single largest contributor and accounting for more than a quarter of the total increase.
Within this total, the STEPS sees rising coal demand from Asian countries offset large declines in the US and Europe. The IEA says:
“Coal is the incumbent in most developing Asian countries: new investment decisions in coal-using infrastructure have slowed sharply, but the large stock of existing coal-using power plants and factories…provides coal with considerable staying power in the STEPS.”
The rise of renewables anticipated under the STEPS to 2040 is demonstrative of the “profound shifts” described by the IEA, yet it also points to the “slow moving” nature of the global energy system, as exemplified by the long, high plateau in demand for coal.
These shifting shares of demand growth are shown in the chart, below, with coal, oil and gas (shades of blue) having met most of the historical increases in energy use (leftmost columns).
While the STEPS maps a future where renewables meet half of the increase in demand to 2040, and the pace of growth slows due to shifting economic factors and energy efficiency (central columns), it remains well short of putting a cap on global CO2 emissions (see discussion below).
If increases in global temperatures are to be stopped, then even more decisive changes will be required, as shown in the example of the IEA SDS (rightmost columns).
Average annual change in global energy demand, by fuel, million tonnes of oil equivalent. Left: historical changes. Centre: IEA STEPS. Right: IEA SDS. Source: IEA World Energy Outlook 2019. Chart by Carbon Brief using Highcharts.
Energy efficiency is the single most important factor in moving from the STEPS to the SDS, the IEA says, meaning that overall demand in 2040 under the SDS is slightly below today’s levels.
It says “the potential for efficiency improvements to help the world meet its sustainable energy goals is massive” and it has convened a Global Commission for Urgent Action on Energy Efficiency to boost progress.
In part, this is a response to data showing that efficiency improvements are drying up and 2018 saw the slowest rate since 2010, with this “faltering momentum” a cause for “deep concern”. It cites “a relative lack of new energy efficiency policies and of efforts to tighten existing measures”.
Lower demand has knock-on consequences, particularly when combined with more rapid growth from renewables. Notably, demand for coal, oil and gas progressively declines under the SDS, with coal facing particularly large reductions (grey chunks in the rightmost columns, above).
Within this total, the IEA suggests that coal use in the power sector would be hardest hit. It says that more than half of current coal-fired power stations would retire by 2040 in the SDS, representing a fleet larger than China’s current capacity.
With half of retirements coming before the end of their useful lives, some of the $1tn of capital invested in the world’s existing coal fleet would be put at risk, if warming is kept below 2C. Some 98% of the 222 gigawatts (GW) of coal in Europe and 88% of the 276GW in the US would close.
Under the SDS, the remaining coal plants would mostly need to be “repurposed or retrofitted”, the IEA says. This means they would either operate limited hours, during peaks in demand and troughs in renewable output, or would face substantial investments to fit carbon capture and storage (CCS) technology to prevent their CO2 emissions.
In the STEPS, global CO2 emissions from energy would continue to rise from the record level they reached in 2018, putting the world on track for upwards of 2.7C of warming this century. This emissions trajectory is shown with the dashed black line in the chart, below.
In contrast, CO2 declines quickly in the SDS (thick red line) to 17% below 2010 levels by 2030, 48% by 2040 and 68% by 2050. According to the IEA, this is “on course for net-zero emissions by 2070” – although it does not give details – which would correspond to a 50% likelihood of limiting warming to 1.65C, or a 66% chance of 1.8C.
This trajectory is less ambitious than most pathways to 1.5C with no or limited overshoot (yellow lines, below). In its special report on 1.5C, the Intergovernmental Panel on Climate Change (IPCC) said this would need CO2 to fall 45% below 2010 levels by 2030 and to net-zero by 2050.
Global CO2 emissions from energy and industrial processes in the past (solid black line) and under a range of different scenarios for the future: IEA STEPS (dashed black); IEA SDS (thick red line); IPCC pathways limiting warming to 1.5C this century with no or limited temperature overshoot (thin yellow lines); pathways to 1.5C with high overshoot (blue); and IPCC 2C pathways (grey). Values below zero indicate negative emissions, where residual CO2 from energy and industry is more than offset by removals, here primarily bioenergy with carbon capture and storage (BECCS). Source: IEA World Energy Outlook 2019 and Carbon Brief analysis of the database for the IPCC special report on 1.5C of warming. Chart by Carbon Brief using Highcharts.
According to the IEA, the SDS charts “a path fully aligned with the Paris Agreement by holding the rise in global temperatures to ‘well below 2C…and pursuing efforts to limit [it] to 1.5C’”. It also offers two options for going beyond the SDS to keep warming below 1.5C.
This form of words implies either that “pursue” means to head towards a goal, without necessarily reaching it, or that the SDS is aligned with 1.5C – so long as it is accompanied by additional action.
Along with the WEO’s central focus on the STEPS pathway, the statement on Paris “alignment” is at the heart of criticism from a group of NGOs, scientists, business groups and others. In an April letter, they called for the IEA to develop a scenario with a 66% chance of limiting warming to 1.5C.
One of the letter’s authors, Dr Joeri Rogelj, a lecturer in climate change and the environment at the Grantham Institute at Imperial College London, says the SDS is “inconsistent with 1.5C and several aspects of the Paris Agreement”.
He tells Carbon Brief that there are at least two potential interpretations of the Paris ambition to “pursue efforts towards 1.5C”. One is that of limiting peak warming to 1.5C and the other is overshooting this level before returning below 1.5C, Rogelj says: “Planning to simply miss it is not a reasonable interpretation for a scenario that wants to be fully aligned with the Paris Agreement.”
He also points to Article 4 of the deal, which commits to reaching a “balance” between human sources and sinks of all greenhouse gases. This goal is likely to require net-negative CO2, for which the SDS provides no detailed pathway.
The IEA says that negative emissions do indeed offer one way that the SDS could become aligned to a 1.5C limit, with 50% probability. A cumulative total of around 300bn tonnes of CO2 (GtCO2) would need to be removed to bridge this gap, it adds, though again without setting out details. However, concerns over the sustainability and deliverability of such extensive deployment are acknowledged by the IEA.
The WEO says:
“[I]t would be possible in the light of concern about [negative emissions technologies] to construct a scenario that goes further than the Sustainable Development Scenario and delivers a 50% chance of limiting warming to 1.5C without any reliance on net-negative emissions on the basis of a zero carbon world by 2050.”
To go beyond its SDS, the IEA says the world would need to tackle “hard to abate” sectors, such as aviation, heavy industry and heat for buildings. This would include near-universal building retrofits and the development and retrofitting of new technologies for industrial processes.
The IEA says this “would not amount to a simple extension” of the changes in the SDS, instead “pos[ing] challenges that would be very difficult and very expensive to surmount.” It adds that tackling some of these areas would require social acceptance and behavioural change:
“This is not something that is within the power of the energy sector alone to deliver. It would be a task for society as a whole…Change on a massive scale would be necessary across a very broad front, and would impinge directly on the lives of almost everyone.”
If the IEA were to develop a 1.5C scenario, despite the challenges it would present, then the agency’s modelling could be used by policymakers to inform their energy and climate choices. Such guidance would be pertinent as governments reconsider their climate pledges under the Paris Agreement, with a fresh round of “Nationally Determined Contributions” due in 2020.
The post ‘Profound shifts’ underway in energy system, says IEA World Energy Outlook appeared first on Carbon Brief.
Subscribe to The Financial Analyst to get original opinion and all the latest news on trending financial topics and breaking stories related to analysis and global markets. If you have a tip or a financial opinion to share get in touch to submit your story.