By Wasana Nadeeshani Sellahewa
Ukraine (Commonwealth Union)_ According to the current edition of the IEA’s World Energy Outlook, the global energy crisis caused by Russia’s invasion of Ukraine is producing fundamental and long-term changes that have the potential to accelerate the transition to a more sustainable and secure energy system. The current energy dilemma is bringing an unparalleled breadth and complexity. The most severe tremors have been felt in natural gas, coal and power markets, with major volatility in oil markets as well, forcing two unprecedented oil stock releases by IEA member nations to avert even more severe disruptions.
In addition to short-term efforts to protect consumers from the effects of the crisis, several governments are now implementing longer-term actions. Some want to enhance or diversify their oil and gas supply, while many want to speed up structural changes. The US Inflation Reduction Act, the EU’s Fit for 55 package and REPowerEU, Japan’s Green Transformation (GX) program, Korea’s goal to boost the amount of nuclear and renewables in its energy mix and aggressive clean energy objectives in China and India are among the most significant responses.
According to the WEO’s Stated Policies Scenario, which is based on the most recent policy settings throughout the world, these new initiatives would help accelerate global clean energy investment to more than USD 2 trillion per year by 2030, a more than doubling. In this scenario, when markets rebalance, the upside for coal from today’s crisis is just fleeting, while renewables, aided by nuclear power, achieve steady advances. As a result, global emissions will reach a peak in 2025. At the same time, as nations respond to the disruption of Russia-Europe flows, worldwide energy markets will experience a major reorientation in the 2020s.
For the first time, a WEO scenario based on current policy settings in this case, the Stated Policies Scenario shows global demand for every fossil fuel peaking or plateauing. In this scenario, coal consumption declines in the next years, natural gas demand hits a plateau by the end of the decade, and increased sales of electric vehicles (EVs) ensure that oil demand plateaus in the mid-2030s before dipping somewhat in the mid-century.
This means that global demand for fossil fuels falls steadily from the mid-2020s through 2050, at a rate approximately similar to the lifetime output of a big oil well. In the WEO’s more climate-focused scenarios, the reductions are significantly faster and more dramatic.
Since the beginning of the Industrial Revolution in the 18th century, global fossil fuel consumption has increased in lockstep with GDP, and reversing this trend will be a watershed event in energy history. In the Stated Policies Scenario, the percentage of fossil fuels in the global energy mix decreases from over 80% to slightly above 60% by 2050. Global CO2 emissions gradually decline from a high of 37 billion tons per year to 32 billion tons by 2050.
This corresponds to a rise in world average temperatures of roughly 2.5 °C by 2100, which is far from sufficient to avert catastrophic climate change consequences. The fulfillment of all climate promises would take the globe closer to safety, but there is still a significant gap. If current growth rates for solar PV, wind, EVs and batteries are maintained, they would result in a far faster transformation than envisaged in the Stated Policies Scenario. However, this will necessitate supporting policies not only in the early leading markets for these technologies, but globally.
Supply chains for several essential technologies, such as batteries, solar PV, and electrolyzers, are increasing at rates that support greater global ambition. If all indicated manufacturing growth plans for solar PV are realized, production capacity would surpass deployment levels in the Announced Pledges Scenario in 2030 by almost 75%. In the case of electrolyzers for hydrogen generation, the potential surplus capacity of all stated projects is roughly 50%.
According to this year’s WEO, stronger regulations will be required to promote the massive increase in energy investment required to decrease the risks of future price spikes and volatility. Investment was subdued owing to lower pricing in the 2015-2020 timeframe, making the energy industry considerably more exposed to the type of disruptions we saw in 2022.
While clean energy investment in the States Policies Scenario exceeds USD 2 trillion by 2030, it would need to exceed USD 4 trillion by the same year in the Net Zero Emissions by 2050 Scenario, underlining the need to attract new investors to the energy industry. Global demand grows by less than 5% between 2021 and 2030 under the Stated Policies Scenario, the scenario with the highest gas usage, and then remains flat through 2050. Gas momentum has slowed in developing countries, particularly in South and Southeast Asia, undermining gas’s credentials as a transition fuel.
