Governments must lead us to the green and promised land, says the IEA
We need a decade of investment in dramatic change
No part of the energy economy can be left to lag behind
Governments have the ‘decisive’ leadership role
The IEA has launched its annual assessment of world energy markets, the World Energy Outlook 2020 (WEO-2020). It reflects the uncertainty of these Covid 19 times. The pandemic has driven a coach and horses through many assumptions.
As is standard the report models several scenarios but the new ‘Delayed Recovery’ (DR) one casts a long shadow over the others: the Stated Policies Scenario (STEPS), which models the impacts of governments’ ‘confirmed intentions’; Sustainable Development Scenario (SDS), which models STEPS against the Paris Agreement to achieve Net Zero, and; the Net Zero Emissions by 2050 case, which models what would be required in the next decade to deliver Net Zero by 2050 (NZE-2050).
This DR section considers what happens if Covid 19 is not brought under control in 2021 and “there are more prolonged outbreaks, prompting continued periodic confinements and other restrictive measures by governments”. Today, this sounds too chillingly close to home.
The bottom line under this worst-case scenario is that by 2030 the global economy will have contracted by around 15% and there will be little or no money to invest in the just transition.
The report states, “This scenario puts many aspects of global energy into slow motion, holding back energy demand and CO2 emissions compared with the STEPS but also slowing many of the structural changes in the energy sector that are essential for clean energy transitions. There is systematic underinvestment in new, cleaner energy technologies and over reliance on existing capital stock.”
We need a decade of investment in dramatic action
A key factor in this gloomy underinvestment scenario is the collapse in demand for oil and gas during the pandemic, which has compounded the collapse in confidence in the sector from investors responding to environmental concerns. The impacts of this are reflected across all scenarios.
This year the sector has written down assets by $50bn and has seen investments fall by a third compared to 2019. The report says this raises questions about the sector’s ability to finance a transition to a cleaner energy future and contribute to emissions reduction.
This is critical, as is emphasised in the special report issued alongside WEO-2020 on the IEA’s methane tracker. Methane emissions are on the rise. The most recent comprehensive estimate suggests that annual global methane emissions are around 570 million tonnes (Mt). This includes emissions from natural sources (around 40% of emissions), and those originating from human activity (the remaining 60% – known as anthropogenic emissions). One tonne of methane is considered to be equivalent to 28 to 36 tonnes of CO2 if looking at its impact over 100 years.
The report estimates there were 82 Mt methane emissions from oil and gas operations in 2019, split in roughly equal parts between the two. These emissions come from a wide variety of sources along the oil and gas value chains, from conventional and unconventional production, the collection and processing of gas, as well as from its transmission and distribution to end-use consumers. Some emissions are accidental, for example because of a faulty seal or leaking valve, while others are deliberate, often carried out for safety reasons or due to the design of the facility or equipment. A combination of retooling the systems and refuelling with green gases will be required to address the issue.
No part of the energy economy can lag behind
The ‘more optimistic’ STEPS and SDR scenarios present a tall order, demanding “a set of dramatic additional actions over the next ten years”.
To achieve NZE-2050 greenhouse gas emissions need to be reduced by 40% by 2030. The report says this will require, for example, that low-emissions sources provide nearly 75% of global electricity generation in 2030 (up from less than 40% in 2019), and that more than 50% of passenger cars sold worldwide in 2030 are electric (from 2.5% in 2019).
Electrification does the heavy lifting and the report says, ‘solar will be king’.
However, it adds, “Massive efficiency gains and behavioural changes all play roles, as does accelerated innovation across a wide range of technologies from hydrogen electrolysers to small modular nuclear reactors. No part of the energy economy can lag behind, as it is unlikely that any other part would be able to move at an even faster rate to make up the difference.”
Green gas has a role to play. The report says, “In Europe in the STEPS, and in all parts of the world in the SDS, the challenge for the gas industry is to retool itself for a different energy future. This can come via demonstrable progress with methane abatement, via alternative gases such as biomethane and low-carbon hydrogen, and technologies like carbon capture, utilisation and storage (CCUS).”
And it must be noted on current stated policies the world is off-track to achieve it’s net zero emissions target and keep global warming below 1.5C.
Hence the report emphasises that as the impacts of global warming come ever more sharply into focus, so does the urgent need for action. This will require the “unwavering efforts from all”.
“To reach net-zero emissions, governments, energy companies, investors and citizens all need to be on board – and will all have unprecedented contributions to make,” the report states. “The changes that deliver the emissions reduction in the SDS are far greater than many realise and need to happen at a time when the world is trying to recover from Covid-19.”
Governments have the ‘decisive’ leadership role
The report offers a blueprint for any pathway to net zero. Companies will need clear long-term strategies backed by investment commitments and measurable impact. The finance sector will need to facilitate a dramatic scale up of clean technologies, aid the transitions of fossil fuel companies and energy-intensive businesses, and bring low-cost capital to the countries and communities that need it most. Engagement and choices made by citizens will also be crucial, for example in the way they heat or cool their homes, or how they travel.
Governments, however, have the decisive role with “unique capacities to act and to guide the actions of others”.
“They can lead the way by providing the strategic vision, the spur to innovation, the incentives for consumers, the policy signals and the public finance that catalyses action by private actors, and the support for communities where livelihoods are affected by rapid change. Our secure and sustainable energy future is a choice – for consumers, investors and industries, but most of all, for governments.”
The IEA issues an executive summary of its annual flagship World Energy Outlook report. The full WEO-2020 report can be purchased here.