An energy economy for the future and the different paths toward it

Par Elisa Harnist, Irem Celebi, Jérémy Koegler, Stéphane Polin, Thibaud Troncin, Mathieu Deschamps, Arthur Grosse, étudiants ESTA Belfort, 05/2022

Mots clés : #Emissions #scenarios #IEA #energytransition #energyeconomy #electricvehicle

Global warming is now having an undeniable impact on the planet and the ecosystem. Limiting the global temperature rise to 1.5 °C without a temperature overshoot is becoming a key issue of our time. 

The four scenario of iea for a better energetic transition

As a result, the World Energy Outlook published in 2021, a report on energy transition, highlighting possible long-term scenarios.  In this report, we have an overview of how far we have come in the transition to clean energy, but also how far we still must go. As we can see, energy plays a crucial role in human well-being and the social and economic development of countries. Almost three quarters of global greenhouse gas emissions come from the energy sector. Several actions are being taken by determined governments to limit these emissions. The scenarios are based on rigorous modelling and analysis.

In this report, the Energy Outlook 2021 detailed projection for four scenarios were modelled:

• The Net Zero Emissions by 2050 (NZE) scenario
• Announced Pledges Scenario (APS)
• Stated policies Scenario (STEPS)
• The Sustainable Development scenario (SDS)

Net Zero Emissions by 2050

This scenario is a normative IEA scenario that shows a narrow but achievable pathway for the global energy sector to achieve net zero CO₂ emissions by 2050.  It is also a scenario that corresponds to United Nation sustainable Development Goals, particularly by achieving universal energy access by 2030 and improving air quality. The aim of the NZE is not to reduce the emissions from outside the energy sector to achieve its goals, but assumes that non-energy emissions will be reduced in the same proportion as energy emissions. This scenario is compatible with limiting the global temperature rise to 1.5 ° C.

The objectives are to show what is needed across the main sectors by various actors and by when, so that the world can achieve net zero energy related and industrial process CO₂ emissions by 2050 while meeting other energy-related sustainable development goals.

Announced Pledges Scenario (APS)

This scenario aims to show to what extent the announced ambitions and targets are on the path to reduce the emissions required to achieve net zero emissions by 2050. It includes all main recent national announcements of 2030 targets and longer-term initiatives to net zero emissions.

A scenario which assumes that all climate commitments made by governments around the world, including Nationally Determined Contributions and longer-term net zero targets, will be met in full and on time. The main aim is to show how close current pledges bring the world to the goal of limiting global warming to 1.5° C. It highlights the « ambition gap » that needs to be closed to achieve the objectives agreed in Paris in 2015.

Stated Policies Scenarios ( STEPS)

The steps take a more conservative and sceptical view of whether governments will achieve their targets. The scenario takes into account sector by sector what has actually been put in place to achieve the targets, taking into account existing and developing measures. The STEPS explores where the energy system might go without a major additional steer from policy makers. As with the APS, it is not designed to achieve a particular outcome.

The objective is to provide a benchmark to assess the potential achievements (and limitations) of recent developments in energy and climate policy.

Sustainable Development Scenario  (SDS)

The SDS represents a gateway to the outcomes targeted by the Paris Agreement. As the NZE, the SDS is based on a surge in clean energy policies and investment.

In the scenario of the SDS, all current net zero pledges are achieved in full and there are extensive efforts to realize near-term emissions reductions. by 2050, the advanced economies reach net zero emissions, China around 2060, and all other countries by 2070 at the latest. This scenario is consistent with limiting the global temperature rise 1.65 °C, without assuming any net negative emissions. The objective is to demonstrate a plausible path to concurrently achieve universal energy access, set a path towards meeting the objectives of the Paris Agreement on climate change and significantly reduce air pollution.

Designing a new energy economy

There are clear signs of change, given recent developments in renewable energy (including wind and solar PV) and electric vehicle sales. However, while a new energy economy is emerging, it is not happening fast enough to avoid the serious consequences of climate change.

Electricity plays an increasingly central role here. Indeed, the share of electricity in final energy consumption has globally increased over the last decades. In NZE, electricity accounts for around 50% of final energy consumption by 2050 (around 30% in APS).

Clean technologies are becoming a major area of investment and international competition in the new energy economy. In NZE, annual market opportunities for manufacturers (wind turbines, solar panels, batteries, electrolysers, fuel cells) are multiplied by 10 by 2050 and then become more important than industry current oil and associated revenues.

Clean energy innovation also appears key to decarbonizing heavy industry and long-distance transportation.

Scenarios, trajectories and temperature

Attached is a detailed assessment of the path taken by the countries in their energy transitions, but also an edifying observation of the path that remains to be travelled. according to the Figure 2, in NZE, global energy-related CO₂ emissions drop to 21 GtCO2 in 2030, marking a decisive change in direction (34 GtCO₂ in APS, 36 GtCO₂ in STEPS) 3.

In particular, the APS highlights the risk of creating a world in which the achievement of “net zero emissions” commitments in some countries is coupled with limited efforts to reduce emissions in others. The implementation of the NZE scenario is highly dependent on the collaboration of all governments, to be effective.

Keep targeting the 1.5°c goal

An additional 12 GtCO₂ emissions will need to be reduced in 2030 to put the world on the path to NZE. As such, there are four main priorities for action to close this gap over the next decade and set the stage for faster emissions reduction beyond 2030:

• Ensure the intensification of clean electrification;
• Realize the full potential of energy efficiency;
• Prevent methane leaks from activities related to fossil agents;
• Driving clean energy innovation.

While clean electrification, efficiency and reducing methane emissions are the main efforts of the next decade, these actions cannot lead to the goal of net zero emissions. As such, boosting clean energy innovation is essential to ensure that new technologies are ready for deployment in the 2030s.

Clean electrification: Coal remains the largest source of electricity in the world (>1/3 of electricity supply) and by far the largest source of emissions from the electricity sector (3/4 of CO₂ emissions from the electricity sector). As such, a rapid decarbonisation of the electricity mix (including the use of nuclear energy where acceptable) is the most important way to close the gap between APS and NZE by 2030.

The rapid decarbonization of the electricity sector also requires a significant deployment of low-emission generation. The greatest potential for deployment to close this emissions gap mainly concerns solar photovoltaic and wind power.

Energy efficiency: Improving energy efficiency will reduce the demand for electricity and fuels of all kinds. Strengthening energy efficiency policies is particularly important in the transport and building sectors. Behavioural changes also contribute to emission reductions, particularly in the transport sector. Stricter standards for aircraft and fuel use are also essential to improve efficiency.

Methane: Methane has contributed about 30% of the current global temperature increase. The 6th IPCC Report7 stresses that a rapid and sustained reduction in methane emissions is essential to limit short-term warming.

In the NZE, total methane emissions from all farms using fossil fuels have decreased by around 75% by 2030, in particular linked to a rapid deployment of emission reduction measures and technologies, which leads to the elimination of all technically avoidable methane emissions by 2030.

Innovation: Almost half of the emission reductions achieved in the NZE in 2050 come from technologies that are still currently in the demonstration or prototype stage. As such, governments should increase their support in key technology areas (advanced batteries, low carbon fuels, hydrogen electrolysers, negative emissions technologies, etc.).

Mobilize investment and financing

To get on track for net-zero emissions by 2050, investments related to the energy transition need to accelerate to nearly USD 4 trillion per year by 2030. According to the APS, this expansion is characterized by an increase in annual investments of USD 1.1 billion in clean energy production and electricity infrastructure and USD 0.5 billion in energy efficiency and decarbonization (building, industry and transport), as well as a rapid intensification of low-carbon fuels (hydrogen and bioenergy). Mobilizing clean energy investments will depend on securing local and international financing.

If the clean energy transition is to be successful, developers and private financiers must increase the amount of capital they allocate to the energy transition and to emerging and developing economies. A multidimensional effort will also be needed to manage the financial and human consequences of phasing out emissions-intensive assets like coal-fired power plants.

People: heart of transition

If the transformation of the energy sector consists in reducing GHG emissions, it also aims to improve the quality of life: eradicating energy poverty and considering the issues of employment, equity, inclusion, accessibility, and sustainable economic development.

Large-scale transitions require broad social acceptance and engagement across society. In the NZE, at least half of the emission reductions by 2030 involve consumer buy-in (e.g., choice of heat pump) or behavioural changes (e.g., mode of travel).

​​Obtaining public support for change involves difficult trade-offs. For example, creating subsidies for heat pumps could make natural gas more expensive, introducing a carbon tax could provoke a negative reaction from low-income households in the absence of effective means of managing the distributional consequences.

Gradually toward zero coal

All scenarios that meet climate goals show a rapid decline in coal use. Indeed, it is not only the fuel with the highest carbon intensity, but also the one whose main use is in a sector (i.e., electricity production) where renewable energy options are the most profitable on the market. market.

Phasing out coal in the electricity sector has two aspects: halting the construction of new plants and reducing emissions from existing facilities.

Reducing emissions from the existing fleet of power plants is particularly difficult to carry out: given the dependence on coal in a number of regions, the closure or conversion of coal mines and power plants could have significant economic and social consequences.

Phasing out coal at the scale and pace required in the NZE requires a comprehensive and sustained commitment from national and local governments and the international community to manage the transitions.

Cost, price and affordability

The 2021 economic recovery has led to an increase in prices, especially for the critical materials such as copper. The study said that if the prices stay like this, investment costs in 2030 can increase to between 400 and 700 billion. The problem is that if the price difference between fuel or fossil energy and the power sector is too high, more investments will be made for the fuel sector.

To deal with this problem, the new technology and the optimization of existing products will help to have energy at an affordable price. This process will need a large investment to find solutions. To add to this, each scenario explains an increase of the energy price for the householders. It is why nations must play a game to help households.

The risks of the energy transition

For example, there may be investment shortfalls, underdeveloped technologies or poor policy that may hinder the energy transition. The goal is to move from carbon-intensive to near-carbon-intensive energies.

Between the different assumptions, the oil demand rate varies greatly. However, by 2050, it is estimated that oil demand will fall by 50 percent. Politics will play a very important role in this decline.

Another problem we are likely to encounter is the storage of electricity. Currently, electrical energy accounts for 10 percent. However, according to all scenarios, this share of renewable energy will have to reach 40 to 70 percent by 2050. We will therefore need new ways of electricity stocking.

There will also be a strong variation in supply and demand. We will therefore have to know how to adapt to this. By 2050, 40 percent of primary energy will be converted twice before being distributed to users. This will require a change in the way energy systems work.

Furthermore, thermal vehicles and gas boilers can only be stopped if a reliable way of replacing them is found. We need to find low-carbon solutions at the same or lower prices than today.

We must also face the risks of climate change. Part of the electrical network, refineries and thermal power stations are exposed to natural hazards. These energy systems need to be strengthened and increased.

Clean energy technologies depend on geopolitical contingencies. There may be changes in law, trade restrictions or political instability. To be a dependent minimum, we need to increase recycling and resilient supply chains.

Fuel : old and new

Having ecological electricity is a target for each scenario, electrification everywhere is not possible. In 2050, the study shows that the energy consumption of electricity will be less than 50 % of the energy bill. Fossil energy will be a major part of the energy mix until 2050.

The demand for oil is declining for each scenario. However, natural gas is increasing to try to produce low carbon energy. For the NZE scenario, 50% will be used to produce low-carbon hydrogen in 2030 and increase to 70% in 2050. The coal will stay here but with a big drop with each scenario.

With the different scenarios, the low-emission alternative fuel will be more and more present to replace the old fuel and oil. The new fuel will play a major part to have 0 net emission. Progress by 2030 will be critical to the future success of low-carbon hydrogen and hydrogen fuels.  In particular, success will depend on significant investments to reduce production and transport costs to ensure that new equipment and vehicles are quickly available on the market.

Electric mobility

Today, the energy transition depends to a large extent on the electrification of our means of transport! However, not all means of transport are destined to be electrified for various reasons. Europe and Asia lead the global EV (electric vehicles) markets. The electrification of road transport accelerates, but at varying speeds across the world.

2030 will be a pivotal decade for road transport electrification, with an estimated number of electric vehicles (EVs) of 145 billion in 2030, with only 11 million nowadays.

As we mentioned before, not all the road transport segments could be electrified, it’s especially the case for medium- and heavy-duty trucks, where only 3% of the total truck stock would be electrified by 2030 in the best-case scenario (SDS). In contrast, the two/three-wheelers are the most electrified road transport segment today, they represent more than 20% of the total EVs fleet. Their light weight, the short driving distances are very optimal because they require small batteries and are very easy to set up. Their growth is very fast, especially in Asia. They will represent more than half of all sales by 2030.

The light-duty vehicles (LDVs) are also conducive to the electrification segment. Their number will increase by 8% per year against 1% today, to reach 140 million vehicles in 2030. The sales share will rise to 35% according to the SDS against 15% in the STEPS, this represents an 80% increase relative to the STEPS.

For the buses, the electrification is mostly limited to urban buses. The bus segment is expected to electrify faster than light-duty vehicles! With a 1.6 million fleet (STEPS) in 2030  (600 000 nowadays). In the SDS scenario, there will be 5.5 million electric buses in 2030 being more than 15% of the stock.

Europe is expected to lead the global electrification of LDVs in both scenarios. By 2030, the electric LDV sales share will be about 40% in STEPS and 80% in SDS. Their EV sales share will be similar to China in STEPS but require higher electrification efforts by 2030 to meet the EU net zero 2050 target in SDS. With around 60% of two/three wheelers sold in electric, China will lead the electrification of this transport section.

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