IEA’s World Energy Outlook 2020
- Nov 11, 2020
COVID-19’s impact on the energy sector has been greater than any other event in recent history and its effects are anticipated to linger for years to come. More than six months into the pandemic, it is still too soon to determine how the health crisis will reshape the energy sector, and if it is a roadblock in the progress of a more sustainable and secure energy system or an agent of change. The International Energy Agency analyzed different pathways out of the pandemic, with a focus on the next decade through 2030.
The World Energy Outlook 2020 studied the global energy demand during these troubled times and forecast a drop by 5 percent in 2020, which also triggers a 7 percent decrease in energy-related carbon dioxide emissions, while energy investment will likely drop by 18 percent. Oil and coal demand are estimated to fall by 8 percent and 7 percent, respectively, and renewables to rise by less than 1 percent. Despite the lockdowns across geographies, global electricity demand looks set to be down by just 2 percent for the year. Moreover, annual carbon dioxide emissions declined by 2.4 metric gigatons, which places them where they were 10 years ago.
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Just like in all other industries, a definite storyline about the future is impossible to predict. Two main uncertainties stand in the way—the duration and severity of the pandemic and its economic impacts, and the response from energy policymakers and the sustainability of the recovery. Thus, the researchers describe four pathways: The Stated Policies scenario, the Delayed Recovery scenario, the Sustainable Development scenario and the Net Zero Emissions by 2050 case.
In the Stated Policies scenario, the virus is brought under control in 2021 and the global economy returns to pre-crisis levels in the same year. The scenario includes all announced policy intentions and targets that are backed up by detailed measures for their realization. Global energy demand—said to grow by 12 percent between 2019 and 2030, prior to the health crisis—is projected to rebound to its pre-crisis levels in early 2023, growing by 9 percent.
The Delayed Recovery scenario uses the same policy assumptions as the STEPS outlook, but the pandemic is prolonged beyond 2021, which causes lasting damage to economic prospects, and the global economy returns to its pre-crisis size in 2023. Using these metrics, the world will see the lowest rate of energy demand growth since the 1930s. Global energy demand is delayed and expected to rebound to its pre-crisis levels in 2025, with growth marking a rise of only 4 percent.
The Sustainable Development Scenario feeds on the surge in clean energy policies and investment, which puts the energy system on the right path to achieve sustainable energy objectives, including the Paris Agreement, energy access and air quality goals. The assumptions on public health and the economy are the same as in STEPS.
The Net Zero Emissions by 2050 case builds on the SDS analysis. An increasing number of countries and companies are targeting net-zero emissions, most of them by midcentury. If this is achieved in the SDS, global emissions could be on track for net-zero by 2070.
COVID-19’s long shadow
Global energy demand reaches its pre-crisis level in 2023 in the STEPS and is delayed until 2025 in the event of a longer-lasting pandemic, as in the DRS. Before the crisis, energy demand was projected to grow 12 percent between 2019 and 2030. Presently, growth over this period is at 9 percent in the STEPS and at just 4 percent in the DRS.
With energy demand declining in advanced economies, oil and gas prices will suffer more, compared to pre-crisis assumptions. All the increase in energy demand will come from emerging markets and developing economies, led by India. India is also said to become the largest market for utility-scale battery storage during this decade.
Governments are attending to the immediate public health and economic crisis, while utilities and complementary entities face financial problems. In addition, borrowing costs have risen considerably in countries where the access deficit is high.
Furthermore, the analysts predict that a rise in poverty levels worldwide in 2020 might make basic electricity services unaffordable for more than 100 million people who already had electricity connections. This would reverse several years of progress and push these people back to relying on more polluting and inefficient sources of energy.
Solar holds the crown
Policies and maturing technologies coupled with sharp cost reductions over the past decade have boosted renewables, and solar photovoltaic became cheaper than new coal- or gas-fired power plants in most countries. In STEPS, renewables meet 80 percent of the growth in global electricity demand through 2030.
While hydropower remains the largest renewable source of electricity, solar is the main driver of growth and is anticipated to set new records for deployment each year after 2022, followed by wind power.
The crisis has weakened many utilities, especially in developing economies, and this could take its toll on the backbone of today’s power systems—the electricity grids.
Coal continues to fall, oil flattens
Coal use for power generation is in a free fall—dragged by reduced electricity demand—and its use in the industry is lowered by reduced economic activity. Coal phase-out policies, the rise of renewables and competition from natural gas lead to the retirement of 275 gigawatts of coal-fired capacity worldwide by 2025, including 100 GW in the U.S. and 75 GW in the European Union. Overall, the share of coal in the global power generation mix falls from 37 percent in 2019 to 28 percent in 2030 in the STEPS and to 15 percent by then in the SDS.
Oil demand, on the other hand, flattens out by the 2030s. The pandemic so far appears to have had a two-sided effect on consumer behavior. The disruption prompted working from home and avoiding air travel, but consumers now prefer to commute by car instead of public transport. SUVs have maintained their popularity and there is an overall delayed replacement of older, inefficient vehicles.
However, transport fuels stopped representing an engine for growth, as oil use for passenger cars has been significantly reduced by continued improvements in fuel efficiency and solid sales of electric cars. Oil use for longer-distance freight and shipping varies in relation to the outlook for the global economy and international trade.
Natural gas’ uneven performance
In the STEPS scenario, natural gas sees a 30 percent rise in global demand by 2040, concentrated in South and East Asia. Leading policies in these regions—such as improving air quality and supporting growth in manufacturing—combine with lower prices to underpin the expansion of gas infrastructure. At the same time, this is the first World Energy Outlook that shows a slight decline in gas demand in advanced economies by 2040.
Low-cost resources, low emissions and diversification are new watchwords in many producer economies and for oil and gas companies. With the decline in production from existing fields that create a need for new upstream projects, investors are looking at oil and gas projects with increased skepticism due to concerns about financial performance and the compatibility of company strategies with environmental goals.
The report’s analysts assert that global emissions are set to rebound more slowly than after the financial crisis of 2008-2009, explaining that this doesn’t mean a faster sustainable recovery: In the STEPS, in 2030, the carbon dioxide emissions will be just above the 2019 levels, and in the case of a delayed recovery they will be lower, but this translates into a weaker economy, and a weaker economy is not a low-emissions strategy.
In the SDS, an additional investment of $3 trillion for the 2021 to 2023 period is directed towards improvements in efficiency, low-emissions power and electricity grids, and more sustainable fuels. This places 2019 in first position for global carbon dioxide emissions; by 2030, emissions in this scenario are nearly 10 metric gigatons lower than in the STEPS.
By 2030, in the SDS, cities’ air quality improves significantly, with fine particulate matter concentration dropping by as much as 65 percent in some areas. The drop is attributed to lower emissions from urban power plants, residential heating units and industrial facilities.
The authors state that if today’s infrastructure continues to operate as it has in the past, it will cause a temperature rise of 1.65 degrees Celsius by itself. The entire map of power plants, industrial plants, buildings and vehicles will generate emissions if they continue to use the combustion of fossil fuels. Estimates point to around 10 metric gigatons of carbon dioxide in 2050 if all these assets—including those currently underway—are operated for the same lifetime and in similar ways as in the past.
Beyond the power sector
Emissions from the power sector increase by more than 40 percent by 2030 in the SDS, and annual additions of solar photovoltaic nearly triple from today’s levels. Electricity becomes a shrinking emitter with the rising output from renewables and nuclear power and with its deep implications in the sectors that are cost-effective to electrify, such as passenger transport.
The most challenging tasks for the transformation of the energy sector are related to the industrial sectors, such as steel and cement, in long-distance transport, in adapting to multiple changes taking place concomitantly across a complex energy system, and in securing and maintaining public acceptance.
Net Zero 2050
Achieving this global goal requires stringent measures over the next decade. To achieve a 40 percent reduction in emissions by 2030, the report’s authors exemplify, requires that low-emissions sources provide nearly 75 percent of global electricity generation (up from less than 40 percent in 2019) and that more than 50 percent of passenger cars sold worldwide in 2030 are electric (from 2.5 percent in 2019). Electrification, energy efficiency, behavioral changes and accelerated innovation across technologies all have important roles in this.
Achieving net-zero emissions globally by 2050 goes beyond the current pandemic, and, despite the hardship, everyone needs to contribute. Companies will need clear long-term strategies, the finance sector will need to facilitate a dramatic scale-up of clean technologies, aid the transition of fossil fuel companies and energy-intensive businesses, and deliver low-cost capital to the countries and communities that need it most. Citizens’ lifestyle choices will be essential, from how they heat and cool their homes to how they travel.