Global energy-related CO2 emissions can be reduced by 70% by 2050 and completely phased-out by 2060 with a net positive economic outlook, according to a study released this week from the International Renewable Energy Agency (IRENA) and the International Energy Agency (IEA). “Perspectives for the Energy Transition: Investment Needs for a Low-Carbon Energy Transition” presents the case that increased deployment of renewable energy and energy efficiency in G20 countries and globally can achieve the emissions reductions needed to keep global temperature rise to no more than 2°C, avoiding the most severe impacts of climate change.
IEA and IRENA developed one core scenario that would be compatible with limiting the rise in global mean temperature to 2°C by 2100 with a probability of 66%, as a way of contributing to the “well below 2°C” target of the Paris Agreement. Both analyses start with the same carbon budget for the energy sectors. But the pathways to reaching the goal differ between the two analyses: the modeling analysis conducted by the IEA aims at laying out a pathway towards energy sector decarbonization that is technology-neutral and includes all low-carbon technologies, taking into account each country’s particular circumstances. The analysis conducted by IRENA maps out an energy transition that stresses the potential of energy efficiency and renewable energy sources to achieving the climate goal, while also taking into consideration all other low-carbon technologies. Transport-related findings, findings from the IEA and IRENA analyses and key messages from the study are summarized below.
Transport-Related Findings
- Biofuels would play an increasingly important role in decarbonising the transportation sector, in particular road freight, aviation and shipping: shortly before 2050, more biofuels are consumed in the transportation sector than gasoline and by 2050, consumption of biofuels would reach almost 12 mboe/d, as the figure below shows.
- Alongside a near-term push to dramatically reduce the fuel consumption of conventional vehicles across all transport modes, the main means to decarbonize transport in the 66% 2°C Scenario are a deep electrification of road transport (including passenger and freight vehicles) and a substantial uptake of advanced biofuels in aviation and shipping. By 2050, nearly 60% of all fuels in the transport sector would need to be low carbon (from 3% today).
- Transport oil demand would fall drastically in favor of electricity and biofuels in the 66% 2°C Scenario; road ethanol would peak before 2040 as the conventional car fleet declines.
- Electrifying road transport at the pace and scale required in the 66% 2°C Scenario is an enormous task: the share of electric cars in passenger car sales would rise from less than 1% today to almost 70% in 2050, more than six-times higher than what is achieved under existing and planned policies in the IEA’s New Policies Scenario and shown in the figure below. This is primarily a challenge for the G20 group, which hold more than 85% of the global passenger car stock in 2050: the largest increase in electric car sales in the 66% 2°C Scenario occurs in the large vehicle markets such as China, India, the United States and the European Union. The main exception among G20 countries is Brazil, which relies more on a very efficient fleet of flex-fuel and pure ethanol engine cars.
IEA Findings
- Limiting the global mean temperature rise to below 2°C with a probability of 66% would require an energy transition of exceptional scope, depth and speed.
- The 66% 2°C Scenario would require an unparalleled ramp up of all low-carbon technologies in all countries. An ambitious set of policy measures, including the rapid phase out of fossil fuel subsidies, CO2 prices rising to unprecedented levels, extensive energy market reforms, and stringent low-carbon and energy efficiency mandates would be needed to achieve this transition.
- Improvements to energy and material efficiency, and higher deployment of renewable energy are essential components of any global low-carbon transition. In the 66% 2°C Scenario, aggressive efficiency measures would be needed to lower the energy intensity of the global economy by 2.5% per year on average between 2014 and 2050 (three-and-a-half times greater than the rate of improvement seen over the past 15 years); wind and solar combined would become the largest source of electricity by 2030.
- A deep transformation of the way we produce and use energy would need to occur to achieve the 66% 2°C Scenario. By 2050, nearly 95% of electricity would be low-carbon, 70% of new cars would be electric, the entire existing building stock would have been retrofitted, and the CO2 intensity of the industrial sector would be 80% lower than today.
- The level of supply-side investment remains broadly constant, but shifts away from fossil fuels. Demand-side investment in efficiency and low-carbon technologies ramps up to almost USD 3 trillion in the 2040s, as shown in the figure below.
- Fossil fuels remain an important part of the energy system in the 66% 2°C Scenario, but the various fuels fare differently. Coal use would decline most rapidly. Oil consumption would also fall but its substitution is challenging in several sectors. Investment in new oil supply will be needed as the decline in currently producing fields is greater than the decline in demand. Natural gas plays an important role in the transition across several sectors.
- The transition to a low-carbon energy sector could help achieve other key energy policy goals, such as reducing air pollution and household fuel expenditures, as shown in the figure below.
IRENA Findings
- Accelerated deployment of renewable energy and energy efficiency measures are the key elements of the energy transition. By 2050, renewables and energy efficiency would meet the vast majority of emission reduction needs (90%), with some 10% achieved by fossil fuel switching and CCS.
- The share of renewable energy needs to increase from around 15% of the primary energy supply in 2015 to 65% in 2050. Energy intensity improvements must double to around 2.5% per year by 2030, and continue at this level until 2050.Energy demand in 2050 would remain around today’s level due to extensive energy intensity improvements. Around half of the improvements could be attributed to renewable energy from heating, cooling, transport and electrification based on cost-effective renewable power.
- The energy supply mix in 2050 would be significantly different. Total fossil fuel use in 2050 would stand at a third of today’s level. The use of coal would decline the most, while oil demand would be at 45% of today’s level.
- Early action is critical in order to limit the planet’s temperature rise to 2oC and to maximise the benefits of this energy transition, while reducing the risk of stranded assets. Taking action early is also critical for feasibly maintaining the option of limiting the global temperature rise to 1.5oC.
- Delaying decarbonization of the energy sector would cause the investments to rise and would double stranded assets. In addition, delaying action would require the use of costly technologies to remove carbon from the atmosphere.
- Meeting the 2°C target requires investing an additional USD 29 trillion between 2015 and 2050 compared to the Reference Case, as shown in the figure below.
- The energy transition can fuel economic growth and create new employment opportunities. Global GDP will be boosted around 0.8% in 2050 (USD 1.6 trillion). The cumulative gain through increased GDP from now to 2050 will amount to USD 19 trillion. Increased economic growth is driven by the investment stimulus and by enhanced pro-growth policies, in particular the use of carbon pricing and recycling of proceeds to lower income taxes. In a worst-case scenario (full crowding out of capital), GDP impacts are smaller but still positive (0.6%) since the effect of pro-growth policies remains favorable. Important structural economic changes will take place. While fossil fuel industries will incur the largest reductions in sectoral output, those related to capital goods, services and bioenergy will experience the highest increases. The energy sector (including energy efficiency) will create around six million additional jobs in 2050. Job losses in fossil fuel industry would be fully offset by new jobs in renewables, with more jobs being created by energy efficiency activities. The overall GDP improvement will induce further job creation in other economic sectors.
- Improvements in human welfare, including economic, social and environmental aspects, will generate benefits far beyond those captured by GDP. Around 20% of the decarbonization options identified are economically viable without consideration of welfare benefits. The remaining 80% are economically viable if benefits such as reduced climate impacts, improved public health, and improved comfort and performance are considered. However, today’s markets are distorted – fossil fuels are still subsidized in many countries and the true cost of burning fossil fuel, in the absence of a carbon price, is not accounted for. To unlock these benefits, the private sector needs clear and credible long-term policy frameworks that provide the right incentives.
- Under REmap, IRENA’s model, final renewable energy use is four-times higher in 2050 than it is today. Power and heat consume about 40% and 44% of the total renewable energy, respectively, as shown in the figure below.
Key Messages from the Study
- Transformation of the energy system in line with the “well below 2°C” objective of the Paris Agreement is technically possible but will require significant policy reforms, aggressive carbon pricing and additional technological innovation. Around 70% of the global energy supply mix in 2050 would need to be low-carbon. The largest share of the emissions reduction potential up to 2050 comes from renewables and energy efficiency, but all low-carbon technologies (including nuclear and carbon capture and storage [CCS]) play a role.
- Total investment in energy supply would not need to rise over today’s level to achieve climate targets, while there is significant additional investment needed in end-use sectors.
- Fossil fuels are still needed through 2050.
- Renewable energy and energy efficiency are essential for all countries for a successful global low-carbon transition, but they will need to be complemented by other low-carbon technologies according to each country’s circumstances, including energy sector potentials, and policy and technology priorities.
- Stronger price signals from phasing out inefficient fossil fuel subsidies and carbon pricing would help to provide a level playing field, but would need to be complemented by other measures to meet the well below 2°C objective.
