Energy transition of ‘exceptional scope’ can unlock $10trn annually
Global energy-related carbon emissions can be reduced by 70% by 2050, generating $10trn a year in benefits, if countries ramp-up national commitments to reach the goals of the Paris Agreement, a new report has found.
The German Government – set to receive G20 Presidency later this year – commissioned the first ever collaborative report between the International Renewable Energy Agency (IRENA) and the International Energy Agency (IEA), to examine the economic costs and benefits of transitioning to a low-carbon future. The report sheds light into the essential transformations that need to occur in order to align global energy emission reductions with the 2C target of the Paris Agreement, while ensuring that nations and sectors benefit.
The report found that a clean energy future would generate $10trn a year by 2050, at the cost of $1.8trn annually to implement the transition. Up to $19trn could be generated from now through to 2050 by focusing solely on the energy sector, but reducing associated externalities, such as outdoor air pollution, brings the benefits to $10trn annually.
The analysis covers the global energy use as a whole and found that a low-carbon transition can create six million new jobs, offsetting any losses suffered in the fossil fuel sector.
“The Paris Agreement reflected an unprecedented international determination to act on climate. The focus must be on the decarbonisation of the global energy system as it accounts for almost two-thirds of greenhouse gas emissions,” IRENA’s director-general Adnan Z. Amin said.
“Critically, the economic case for the energy transition has never been stronger. 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 IEA has previously been criticised for “holding back the global energy transition” by publishing misleading projections, but the inclusion of IRENA analysis has boosted the outlook of this report. It outlines a scenario with a 66% probability of meeting the goals of the Paris Agreement, significantly up from IEA’s 450 Scenario, which has a probability of 50%.
Looking at global energy use across power generation, transport, buildings and industry, the joint report estimates that the global carbon budget between 2015 and 2100 sits at 880Gt. Currently, binding Nationally Determined Contributions (NDCs) to the Paris Agreement suggest that the energy sector would emit around 1,260Gt by 2050, more than 60% above the projected budget and already emits 32Gt of CO2 annually.
To change this outlook, the report calls for an energy transition of “exceptional scope, depth and speed” to be introduced that sees energy-related emissions peak before 2020, and then fall by 70%. Fossil fuel generation would halve by 2050, while low-carbon sources – including carbons storage for fossil fuels – would have to triple globally to comprise 70% of the energy demand in 2050.
The report notes that an “unprecedented” carbon price of $190 per tonne would be needed to facilitate the shift, allowing the economic powerhouses of the G20 to provide around 75% of global emissions reductions.
The energy transition is affordable, the report claims, although cumulative additional investment would amount to around $29trn by 2050, this is in addition to the $116trn envisioned under a “business as usual” reference case.
Fortunately, the transition could boost GDP by 0.8% by 2050, with a carbon price and the recycling of proceeds to lower income taxes helping to facilitate growth. Even under a worst-case scenario of this transition, the report still expects GDP to grow by 0.6%.
To ensure that the energy sector isn’t thrown off balance in the low-carbon transition, the report claims that carbon capture and storage (CCS) will offer fossil fuel assets the chance to recover investments and minimize stranded assets, estimated to be worth around $2trn. CCS is expected to account for 10% of global emissions reduction by 2050, with renewables and energy efficiency accounting for the rest.
The balancing of the energy sector would also need to be replicated across other sectors. Nealry 95% of electricity will be low-carbon under the report’s scenario and 70% of new cars would be electric. The report notes that the entire existing building stock would have to be retrofitted and the carbon intensity of the industrial sector would be 80% lower than today’s standards.
Fortunately, these sectoral approaches would keep energy demand in 2050 at similar levels to today’s readings, although the report does call for these approaches to be broadened to account for other sectors in order to create annual 9.5Gt falls in emissions by 2050, necessary to the goals of the Paris Agreement.
The report was published days after the IEA revealed that global emissions from energy production remained at 32.1Gt in 2016, the same as the previous two years, during a year of economic growth, which grew by 3.1%.