This is the first of three articles detailing the findings from the first report ever published jointly by the International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA). This article deals with the report’s findings on emission reductions, the second article deals with the predicted economic benefits of the energy transition, while the third article deals with the potential trillions of dollars worth of stranded assets.
Global energy-related carbon dioxide emissions could be reduced by as much as 70% by 2050, and completely phased out by 2060, all while providing a net positive economic outlook that could benefit up to trillions of dollars in economic benefits and GDP.
These are just some of the findings from the first ever report published jointly by the International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA) this week. The report, Perspectives for the Energy Transition: Investment Needs for a Low-Carbon Energy Transition, focused on the global potential for decarbonization of the energy sector in an effort to determine the investment needs and potential over the next decades. “Understanding the energy investment landscape today and how it can evolve to meet decarbonisation goals are central elements of the energy transition,” the authors of the report noted. The focus on the energy sector specifically is not difficult to comprehend, as it accounts for approximately two-thirds of global greenhouse gas emissions.
The report was conducted by the IEA and IRENA at the behest of the German government, which sought further information “on the essential elements of an energy sector transition that would be consistent with limiting the rise in global temperatures to well below two degrees Celsius (2°C), as set out in the Paris Agreement.” The “overarching objective of this study” therefore was to “analyse the scale and scope of investments in low-carbon technologies in power generation, transport, buildings and industry (including heating and cooling) that are needed to facilitate such a transition in a cost-effective manner, while also working towards other policy goals.”
If we as a planet are to meet the goals enumerated in the Paris Agreement and keep global temperatures below an increase of 2°C, emission intensity needs to reduce by 85% in 35 years (by 2050). This works out as a need to reduce global energy CO2 emissions by 2.6% per year on average, or around 0.6 gigatonnes annually in absolute terms. One of the key messages of the report, therefore, is that “the global energy transition (or decarbonisation) must be accelerated over the next 35 years in order to prevent global temperatures from rising more than 2°C.”
Unsurprisingly, energy efficiency measures and renewable energy capacity additions are expected to be the primary drivers of emissions reductions. By 2030, energy and materials efficiency will reduce emissions by 4 gigatonnes, while renewable energy options should reduce emissions by another 10 gigatonnes. Add in a 1.5 gigatonne cut due to electrification, and the REmap forecast expects global emissions to fall by 25.5 gigatonnes in 2030 — leaving the remaining fossil fuel combustion generation emitting around 22 gigatonnes of CO2 emissions annually.
But these efforts need to continue past 2030, requiring policy and investment support now. If they do continue, the REmap forecast should look like this:
Primary CO2 emissions reduction potential by technology in the Reference Case and REmap, 2015-2050.
Focusing on investments driving the energy sector and its transition to a low-carbon future is one of the most effective means for accurately determining what is possible and how to achieve it. While government energy and climate policies play their part, it is the role of investors that is the actual driver of movement — turning policy into reality with the support of those with the money to see things done.
What we have seen in recent years is the fruit of this. There has long been a growing political desire to mitigate global warming and transition to a cleaner energy future, but only in recent years has the economic argument been clearly made — that transitioning to clean renewable energy technologies need not rely on government subsidies and handouts, but can reward investors and companies handsomely.
“The Paris Agreement reflected an unprecedented international determination to act on climate,” said IRENA Director-General Adnan Z. Amin.
“The focus must be on the decarbonision of the global energy system as it accounts for almost two-thirds of greenhouse gas emissions. Critically, the economic case for the energy transition has never been stronger. Today around the world, new renewable power plants are being built that will generate electricity for less cost than fossil-fuel power plants. And through 2050, the decarbonisation can fuel sustainable economic growth and create more new jobs in renewables.
“We are in a good position to transform the global energy system but success will depend on urgent action, as delays will raise the costs of decarbonisation.”
The report also highlighted a larger series of “deep transformation of energy production and consumption” that needs to occur by 2050, including:
- Nearly 95% of electricity would need to be low-carbon by then, compared with about a third today, led by renewables
- 7 out of every 10 new cars would need to be electric, compared with 1 in 100 today
- The entire existing building stock would need to be retrofitted and the CO2 intensity of the industrial sector would need to drop by 80% below today’s levels
- Fossil fuels, in particular natural gas, would still be needed in 2050, and would account for 40% of energy demand, around half of today’s level
- $3.5 trillion in energy-sector investments would be needed on average each year until 2050, which is around twice current levels of investment
While all of this is technically feasible, the report ends on the key message that the “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.”