IEA, IRENA Investment Needs for a “Low-Carbon Energy System”

Last week, the International Energy Agency (IEA) found that world carbon dioxide emissions were flat for a third straight year in 2016, even as the global economy grew. That’s good news, but clearly a lot more is going to have to happen, specifically a rapid transition from dirty to clean energy, in order to limit the damage from fossil-fueled global warming. What would such a transition look like?  Yesterday, the IEA and International Renewable Energy Agency (IRENA) rolled out a new report laying out the investment path to reach a “low-carbon energy system” by 2050 and a complete phaseout of fossil fuels by 2060. A few highlights from the report include:

  • “Limiting the global mean temperature rise to below 2°C with a probability of 66% would require an energy transition of exceptional scope, depth and speed,” in which the share of low-carbon or zero-carbon energy sources would “more than triple worldwide to comprise 70% of energy demand in 2050.”
  • This transition will require an “ambitious set of policy measures,” introduced “immediately and comprehensively across all countries,” and “including the rapid phase out of fossil fuel subsidies, CO2 prices rising to unprecedented levels, extensive energy market reforms, and stringent low-carbon and energy efficiency mandates.”
  • “Improvements to energy and material efficiency, and higher deployment of renewable energy are essential components of any global low-carbon transition,” with a reduction in global energy intensity of “2.5% per year on average between 2014 and 2050” and with “wind and solar combined [becoming] the largest source of electricity by 2030.”
  • Wind power and solar PV become the two leading technologies in terms of installed capacity in the 66% 2°C Scenario, both reaching roughly twice the level in 2050 of the New Policies Scenario.”
  • By 2050, nearly 95% of electricity would be low-carbon, 70% of new cars would be electric, the entire existing building stock would have been retrofitted, and the CO2 intensity of the industrial sector would be 80% lower than today.”
  • “Around USD 3.5 trillion in energy sector investments would be required on average each year between 2016 and 2050, compared to USD 1.8 trillion in 2015.” This sounds like a huge amount of money – and according to IRENA we’re talking about an additional $29 trillion between 2015 and 2050 compared to the reference case – but “additional net total investment, relative to the trends that emerge from current climate pledges, would be equivalent to [just] 0.3% of global gross domestic product (GDP) in 2050.”
  • “The energy supply mix in 2050 would be significantly different,” with fossil fuel use about one-third of today’s level and renewable energy growing to 65% of primary energy supply (and 80% of power generation).
  • This would require renewable energy’s share of the global energy mix “to double by 2030 and more than triple by 2050 from today’s level.” Fortunately, the analysis finds that “supplying two-thirds of global 2050 primary energy with renewable sources is technically and economically feasible.”
  • “The energy transition can fuel economic growth and create new employment opportunities. Global GDP will be boosted around 0.8% in 2050 (USD 1.6 trillion). The cumulative gain through increased GDP from now to 2050 will amount to USD 19 trillion. Increased economic growth is driven by the investment stimulus and by enhanced pro-growth policies, in particular the use of carbon pricing and recycling of proceeds to lower income taxes.”
  • “Improvements in human welfare, including economic, social and environmental aspects, will generate benefits far beyond those captured by GDP.” As we know, “today’s markets are distorted – fossil fuels are still subsidised in many countries and the true cost of burning fossil fuel, in the absence of a carbon price, is not accounted for.”
  • Delaying policy action to achieve these goals could results in large-scale “stranded” fossil fuel assets. In such a scenario, “The total value of the stranded assets in the upstream energy, electricity generation, industry and buildings sectors would be USD 20 trillion.”