Emissions are rising but the global energy transition is picking up speed
The International Energy Agency (IEA) has just released a Net Zero report card and the results are mixed. The bad news. The IEA’s updated Net Zero Roadmap reports that “energy sector carbon dioxide emissions have continued to rise, reaching a new record in 2022. But there is also good news. The IEA confirmed what has become increasingly clear: The last two years have seen “remarkable progress” in developing and deploying key clean energy technologies.”
RMI experts Kingsmill Bond and Sam Butler-Sloss take a deep dive into the Roadmap to provide an overview of key takeaways and what is most important. Their analysis first appeared in a Renewable Revolution substack.
Overview: From “should” to “will” and four key actions for 2030
- The report is a significant change in tone since the 2021 Net Zero roadmap. That report was all about ‘should’ while this report is all about ‘will’. As a result of the continued rapid growth in renewable deployment, the IEA has moved from a theoretical exercise in 2021 to embracing the prospect of a net zero future with enthusiasm.
- There is much more focus on what we need to do. Rather than a long list, there are four key things that we need to do by 2030: triple renewable capacity; double efficiency; reduce methane emissions by 75%; and increase electrification with EV and heat pumps.
- It is time to take the net zero scenario (NZE) as a likely scenario, not just a normative one. Because it is closer to reality than the STEPS scenario, and in line with the Rystad 1.6 degree scenario, which is often presented as the primary scenario.
- The STEPS scenario needs to be seen as an unlikely outlier of what will happen if we stop innovating. It gets upgraded every year and is a lagging indicator.
- Forecasts are moving in the right direction. The forecasts are similar to those in the 2021 NZE, but have moved incrementally towards a future with more electrification and less fossil fuels and CCS. If we look for example at 2050, total expected primary energy is almost the same but primary energy used for electricity generation has increased from 68% to 73% whilst fossil fuel demand is down by 30 exajoules and CCS is lower by 2 gigatonnes.
There are 30 million new jobs in the clean energy economy versus 13 million jobs lost in fossil fuels
Bottlenecks are soluble
The IEA addressed a lot of the standard concerns about the energy transition.
- The energy transition is cheaper than business as usual (BAU). The IEA looked at both capex and opex and noted that when you combine them, the energy transition will cost $12 tillion less than the IEA’s BAU STEPS scenario. So whilst capex is a little higher, the savings on high fossil fuel prices more than outweigh the capital costs you spend. And, importantly, NZE will mean lower energy prices for consumers.
- We are building enough grids. The IEA calculates that we need to build 2 million kilometers of grids every year versus the average for the last five years of 1.9 million kilometers a year. That is to say, in spite of all the opposition to change, enough is getting built.
- CCS is not an excuse for inaction. The IEA notes that if we fail to act now to curtail emissions, we will have to build up an enormously expensive industry in the future to take the emissions out of the air. It is much cheaper (and of course more just) to act now. It notes that if we do not continue to scale up renewables, it would cost $1,300 billion per annum to remove the excess carbon from the air in the second half of the century, which is 50% more capital expenditure than we spend on oil and gas today. It is much cheaper to cut emissions today than to remove them in the future.
- We are quickly evolving the technology. In 2021, the IEA calculated that we only had 50% of the technology that was required by 2050. In 2023 that increased to 65%. As so often, necessity is proving the mother of invention.
- We have enough land. Even if you take the most pessimistic way to calculate land requirements, it would be a maximum of 2.5% of available land. In fact, as noted by many others, this overstates the land use by counting the entire visual footprint of wind, but even then it is clear that land is not an insoluble impediment.
- Stranded assets are coming. Even if we stop building fossil fuel assets today, some existing usage assets will not be needed and some existing oil and gas wells will be stranded. $3,600bn is already committed to building out fossil fuel infrastructure above the requirements of net zero.
- The supply chain for renewables is being built out. This is happening at remarkable speed, led by solar and batteries, and driven by the hunt for industrial advantage. You have to be in it to win it.
- More jobs. As observed before, there are more jobs, and more local jobs, in the renewable system than the fossil fuel one. The IEA notes that 30 million new jobs in the clean energy economy versus 13 million jobs lost in fossil fuels. Moreover, the prize will go to those who build out renewables in a race to the top.
- Renewables means higher efficiency. The IEA breaks down efficiency gains into three parts, and notes that the very growth of renewable technologies will increase efficiency. This means that the efficiency increase to 4% is a lot more achievable.
- Less resources for a renewable economy. The agency calculates that the total amount of resources needed for a renewable economy is two-thirds less than the current fossil fuel economy. Because critical minerals weigh a lot less than fossil fuels.
- Transition is justice. The IEA notes that the net zero model is the best way to get electricity to the 775 million who lack it and clean cooking to the 2,400 million who lack that.
Change in the real world is driven by lower costs of renewable technology
It seems a bit harsh to critique the IEA when the agency is challenging the might of the fossil fuel incumbency, but a few comments below.
- Better foresight. As battery technology has improved and costs have fallen, so the IEA has increased the expected share of electrification and so reduced the expected amount of CCS and fossil fuels. This was entirely predictable, and it will happen again next year. If you are too conservative about new technologies, you will be too aggressive about old technologies.
- Driven by carbon prices. The model seems to be driven by carbon prices but change in the real world is driven by lower costs of renewable technology. It would be good to specify the expected costs of key renewable technologies and to think through what really low costs mean.
- Conservative after 2030. From 2030-2040, solar grows by only 7% a year, and then after 2040 it grows at only 4% a year. For the cheapest energy source in history, falling in price and available all over the world, that is very conservative. People are bound to figure out how to deploy it at greater scale, and that in turn will mean that many of the currently harder-to-solve sectors will become soluble.
- Remember sequencing. It is entirely correct to worry about the deployment of renewables in the emerging markets. But it is also entirely reasonable to assume that deployment will follow success in leading markets. As with the internet, wealthier countries drive volumes and costs down, and then new tech is rolled out everywhere.
- There should be lower GDP growth in the STEPS scenario. If the IEA uses the STEPS scenario with all the negative global warming consequences and costs, it is necessary to reflect those in lower GDP levels.
- More math please. The impact of learning curves on future prices and the S-curve growth of new energy technologies is now well demonstrated by Doyne Farmer at Oxford, RMI and others. It would be good to see this reflected explicitly in IEA forecasts.
- Competition. It is competition between companies and between countries that is driving rapid change. There needs to be more emphasis on competition and on price.
- Counting. Energy is still being counted in primary and final energy terms. Which, as the IEA notes, undercounts solar and wind by a factor of two or three. Useful energy needs to be given more prominence in the analysis.
- Big models have limits. For example, how will the halving of solar costs impact the location of industries or the ways people come up with to use it.
- Still too much CCS, biomass and nuclear. As successful modular renewable technologies like solar and batteries keep evolving, the IEA is likely to continue to push expensive ones like CCS, biomass and nuclear out of the mix. We should not try to solve tomorrow’s problems with today’s solutions.
Five key charts: