ESG Focus: IEA Report; The Long Path To Net Zero Emissions

ESG Focus | Jun 18 2021

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IEA Report: The Long Path To Net Zero Emissions

The International Energy Agency (IEA) has released its Net Zero by 2050 report, outlining a proposed 400-step guideline to globally transition to a net zero energy system.

-IEA says energy use must decrease amid a growing population to achieve net zero emission targets
-400-step plan from the IEA offers a chance at limiting temperature rise to 1.5 degrees
-Renewables expected to rapidly replace fossil fuel generation in the next decade

By Danielle Austin

With the global population and economy set for continued growth over the next four decades, action to achieving carbon emission goals by 2050 is becoming more prevalent.

The International Energy Agency (IEA) has released its Net Zero by 2050 report, outlining a proposed 400-step guideline to globally transition to a net zero energy system and hope to limit global temperature rise.

The IEA claims its plan is designed to allow continued economic growth and secure energy supply while maximising “technical feasibility, cost-effectiveness and social acceptance”.

The net zero emissions target was introduced by the Intergovernmental Panel on Climate Change, who posit zero emissions by mid-century is critical to avoiding the worst climate change outcomes.

The number of countries committing to achieve net zero emissions increases every year, and with rapid increase in commitments over the last twelve months, these pledges now account for around 70% of global carbon emissions.

Regardless, the disparity between those countries committing to achieve net zero and the output of carbon emissions continues to grow, with many countries yet to implement policies and measures to achieve their promises.

Even if all pledges were met, the difference between pledges made and net zero commitments in 2050 is still around 22bn tonnes of carbon emissions.

Multiple gaps to fill

The IEA has modelled a Stated Policies Scenario (STEPS) that considers the outcomes of existing and stated policies for the energy sector, as well as an Announced Pledges Case (APC) which predicts the results when all net zero pledges are realised in full and on time.

With few net zero pledges currently underpinned by policy, the STEPS model largely does not take into account the impact of net zero pledges.

The current STEPS model fell far short of a net zero result in 2050 and pointed to an emissions trend that would see the global average surface temperature rise by around 2.7 degrees Celsius by 2100.

The STEPS model also highlighted a disparity between advanced and emerging economies. The model predicts advanced economies to utilise environmental policy and technological progress to record declines in carbon emissions of about a third between 2020 and 2050.

Emerging economies, by contrast, are expected to sustain economic growth, urbanisation and infrastructure expansion that outweighs the deployment of clean technologies; this will cause an almost 20% increase in emissions by 2040 before a marginal decline before 2050.

The STEPS model leaves 750m people without access to electricity in 2050, 95% in sub-Saharan Africa, and 1.5bn people continuing to rely on bio-energy for cooking.

The APC model is not underpinned by policy commitments but aims to predict the shortfall that would remain on the path to zero emissions by 2050 if all net zero pledges were met.

Current global pledges by governments cover around 70% of total emissions, but with little policy in place to detail how these pledges will be met, and how countries will offset remaining energy-related emissions, the APC model makes assumptions based on pathways already outlined by some governments.

Under this model, emissions rebound slightly to 2023 but decline to 30 gigatonnes by 2030 and 22 gigatonnes by 2050. This pathway points to a global average surface temperature rise of 2.1 degrees Celsius by 2100.

The difference in outcomes of the STEPS and APC modelling highlights the importance of policy to underpin pledges, and the IEA report has outlined seven priority actions for policymakers to consider.

These include enacting massive clean energy expansion this decade, boosting innovation and investment in clean energy, growing jobs in clean energy, and setting near-term targets.

As of April 2021, 44 countries and the European Union have pledged to meet a net-zero emissions target. Ten of these countries have made their pledge a legal obligation.

Path to net zero by 2050 “narrow but still achievable”

This decade is poised to be significant decider in the path to achieving net zero emissions by 2050, with the IEA describing a world economy in 2030 that is 40% larger than today but operates on -7% less energy.

Massive clean energy expansion during the 2020s is key to this, requiring an annual rate of energy intensity improvements of around 4%, or around three-times the average rate of improvements over the last two decades.

In the next ten years, the IEA outlines reductions in fossil fuel methane emissions of -75%, and the scaling up of renewable energy sources to annual additions of solar and energy four-times that of 2020.

As a priority, the report has identified significant change needs to be enacted globally at the policy level and for governments to recommit funding to research and development of renewable energies including electrification, hydrogen, bio-energy and carbon capture utilisation and storage (CCUS).

The IEA predicts around US$90bn needs to be committed to complete necessary demonstration projects before 2030, with only around $25bn spend currently committed to.

A global effort

The report highlights inequality between nations means countries are not starting on the journey to net zero emissions from the same place, nor will they reach the end-goal at the same time.

The IEA has highlighted the importance of a collaborative global effort, where advanced economies capable of reaching net zero before emerging economies have a responsibility to reach targets early and look to help others.

International cooperation will be critical in managing cost reductions in key energy technology and continued development and dissemination of clean energy technology that is currently concentrated in a handful of countries. A cooperative international approach to carbon pricing may also be crucial, which the IEA expects to be implemented soon in many advanced economies.

Societal expectations are crucial

While the energy sector will need a major overhaul to meet emission targets, ultimately the catalyst for these changes comes from societal expectations. People will drive demand for change and our personal choices will play a role in shaping the policy and business decisions enacted in coming years.

The path to zero emissions outlined by the IEA relies on many uncertain factors.

The agency identified the pace of innovation in new and emerging technology, the extent to which individual behavioural changes are enacted, the availability of sustainable bio-energy, and the extent of international cooperation and collaboration, as four factors of differing uncertainty that will shape the pathway to zero emissions.

The Net Zero Emissions by 2050 Scenario

In addition to the STEPS and the APC models, the IEA also provided a Net Zero Emissions by 2050 Scenario (NZE) to outline further action needed to achieve a zero emissions result and to aim to limit the global temperature rise to 1.5 degrees Celsius.

The NZE is based on radical change within the seven key pillars of decarbonisation, identified as energy efficiency, behavioural changes, electrification, renewables, hydrogen and hydrogen-based fuels, bio-energy and CCUS.

Under the NZE model global energy-related and industrial process carbon emissions fall by nearly -40% by 2030 and achieve net zero by 2050. By 2030 solar and wind become the leading sources of electricity and methane emissions from fossil fuel use are reduced -75%, as coal demand declines -90% by 2050.

In this scenario increased energy efficiency, wind and solar will account for around half of all emissions reductions by 2030, and the sector continues to provide increased electrification, hydrogen use and CCUS technology implementation that will again account for more than half of emissions savings between 2030 and 2050

The NZE relies on several assumptions. Firstly, that there will be global governmental cooperation with the aim of achieving global net zero emissions.

Secondly, that the uptake of technology and emission reducing options will be dictated by costs, technology maturity, policy preferences and market and country conditions.

And finally, that an orderly transition across the energy sector will occur.

There is no need for new coal generators or gas

Changes to the energy sector are set to be a focal point for the next decade to achieve zero emissions by 2050. Measures to increase energy efficiency which can be implemented in coming years will be front-loaded.

While efficiencies to the sector will continue past 2030, the role of energy will be most crucial in this decade to pave the way for further mitigation measures.

Currently, the energy sector accounts for around three-quarters of gas emissions and so will undeniably play a large part in the journey to net zero. Under the NZE model, the necessary transformation of the energy sector will occur concurrently with large increases in global population and economy.

The rapid decrease in demand for oil and natural gas as renewable energies become the preference means there will be no need for further oil and gas field developments beyond what has already been approved.

This will see all subcritical coal stations phased out by 2030, and all non-CCUS fitted stations phased out by 2040. The use of low-emissions electricity to replace fossil fuels will account for around 20% of total emission reductions, with global demand more than doubling before 2050.

Whereas in 2020 oil accounts for 30% of total global energy supply, with coal supplying 26% and natural gas 23%, the energy supply in 2050 will look very different.

According the NZE modelling renewables will provide two-thirds of total energy supply, comprising bio-energy (21%), hydrogen (12%), wind, solar, geothermal, as well as an increased energy supply from nuclear power.

The use of fossil fuels as an energy supply is set to fall from 80% in 2020 to just over 20% in 2050.

Advances in CCUS will account for more than a fifth of emission reduction, while carbon pricing comes into effect in advanced economies in the immediate future, with the IEA predicting prices on carbon could be as much as US$323 by 2050.

Individual behavioural changes

The IEA’s NZE model also outlines behavioural changes will account for a decrease of 1.7 gigatonnes, or -8%, of carbon emissions in 2030.

These behavioural changes refer to repeated consumer behaviours, and largely fall under three areas: reducing wasteful energy use, embracing energy-efficient transport and improved recycling practices.

These practices include limiting heating and cooling temperatures in our homes, limiting driving speeds, shifting to cycling, walking and ridesharing, swapping domestic plane travel for rail, maintaining decreased levels of international travel, and increasing the shift away from single-use plastics.

While some of these can, and need to be, underpinned by policy, people will need to be accountable for their own choices.

If behavioural changes cannot be enacted, technology would be required to fill the gap left. This could equate to a need to increase electric vehicles by 45% in 2030, rather than the 20% necessary if widespread behavioural changes can be adopted.

The future workforce

Necessarily, widespread changes in the energy sector will have mass impacts on the global workforce and the roles available.

With around 40 million people employed in the oil, gas, coal, renewables, bio-energy and energy industries, it will be important for policymakers to intuit this and account for these impacts when making decisions that will impact these workforces.

A better understanding of current energy industry employment would help direct government support and re-skilling needs.

Under the NZE, 14 million clean energy jobs would be created, but these don’t necessarily equate to the jobs lost and skill sets may not be directly transferable.

Job losses would also be more concentrated in communities dependent on fossil energy production.

A further 16 million roles would be needed to adjust to increased spending on efficient appliances, electric and fuel cell vehicles, building retrofits and energy-efficient construction, equating to around 30 million jobs in clean energy and low-emission technology by 2030.

A hypothetical path past the next decade

While the path to enact real change in the next decade is attainable with existing technology, half of the technology necessary to enact the necessary changes beyond 2030 is still in demonstration or prototype phase.

The IEA’s pathway to net zero, therefore, depends on these technologies becoming available over the next decade.

The largest and most crucial innovation opportunities come from advancing batteries, hydrogen electrolysers and direct air capture and storage.

Advancements in these currently non-commercially available technologies will present a vital difference in emission levels between 2030 and 2050.

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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