Peak emissions from fossil fuels could be reached by 2025, with the contribution to global energy supply falling to 73 percent by 2030, after for decades it had been stuck well above 80 percent. This is thanks to renewables, energy efficiency and electrification, which have completely reconfigured the energy scenario by the end of the decade.
This is the most important message to emerge from the International Energy Agency's (IEA) World Energy Outlook 2023, the most authoritative international report on energy scenarios, presented today, October 24, and obtained in a preview by Renewable Matter. Good news ahead of the COP28 climate negotiations in Dubai.
The combination of the growing momentum of clean energy technologies and structural and geopolitical economic changes around the world has had major implications for fossil fuels, shifting the peaks in global demand for coal, oil, and natural gas possible as early as this decade. A resounding statement: this is the first time it has been outlined in scenarios developed by the World Energy Outlook (WEO23), which has always been the go-to gospel for governments and multinational corporations.
Decarbonization, full steam ahead
The IEA report describes an energy system by 2030 in which clean technologies will play a much larger role than they do today. Globally, solar photovoltaics will generate more electricity than the entire U.S. energy system currently does; about 10 times as many electric cars will be on the road as those currently registered; the share of renewables will reach nearly 50 percent of the global electricity mix (up from about 30 percent today); heat pumps and other electric heating systems will surpass fossil fuel boiler sales globally while investment in new offshore wind projects will be three times that of gas and coal-fired thermal power plants.
“The transition to clean energy is happening all over the world and is unstoppable. It's not a question of if it will happen, but how soon – and the sooner, the better for all of us,” said IEA Executive Director Fatih Birol. “Governments, companies and investors must support the transition to clean energy rather than hinder it. The benefits are immense, including new industrial opportunities and jobs, energy security, cleaner air, universal energy access and a safer climate for all. Considering the tensions and volatility in today's traditional energy markets, claims that oil and gas represent safe choices for the world's energy and climate future appear weaker than ever.”
An acceleration strategy
The World Energy Outlook's scenario is based only on current government policy settings (Stated Policy Scenario, STEPS). However, as the report indicates, the growing geopolitical tensions in the Middle East must be taken into account, which once again bring attention to energy security and instability in oil markets, 50 years after the oil shock that led to the founding of the IEA. This scenario will create further instability for an uncertain global economy that is stubbornly suffering from the effects of inflation and high interest rates.
To further accelerate the decarbonization of the energy sector, WEO23 proposes a comprehensive strategy based on five pillars: tripling global renewable energy capacity; doubling the rate of energy efficiency improvements; reducing methane emissions from fossil fuel operations by 75 percent; supporting innovative and large-scale financing mechanisms to triple clean energy investments in emerging and developing economies; and measures to ensure an orderly phase-out of fossil fuels, including an end to new approvals of coal-fired power plants.
Strategy that could be well taken up in the December U.N. negotiation to provide working directions for nations for the period from the annual Global Stocktake (the state of global decarbonization) to the next one in 2028. As well as giving clear investment guidance to global funds and large (and small) shareholders.
The peak of fossils
If coal and oil (whose market is increasingly unstable) are sharply downsized – but not slowing down as required by climate models – it is worth noting how what has repeatedly been called “the transitional fossil energy source,” namely natural gas, also loses steam. Its golden age, announced in 2011 by the very same report, comes to an end. In fact, the IEA has once again revised downward its forecast for natural gas demand. If in 2022 the demand for natural gas by 2040 had already been sharply downsized (570 bcm, about 12 percent reduction from previous years), in the new document the estimates have been corrected with a staggering drop of another 140 bcm, a direct consequence of the energy crisis triggered by Moscow.
This is news that is expected to trigger panic among those who have invested in new LNG projects that will come on stream starting in 2025 (equivalent to about 45 percent of current global LNG supply). On the one hand, these projects will alleviate concerns about gas supply prices, but on the other hand they also risk creating an oversupply and thus becoming redundant in the 2030-40 decade, entering the class of stranded assets.
If the data were to be confirmed by the facts (and reality has often exceeded some of the IEA's rosiest decarbonization predictions) opportunities for Russia to expand its customer base would collapse. Russia's share of internationally traded gas, which was 30 percent in 2021, is set to fall by half by 2030.