The International Energy Agency (IEA) says that there are “mixed signals” about the pace and direction of change in global energy markets.
In its latest World Energy Outlook (WEO) report, the IEA shows that while some renewable energy technologies continue to grow, gas demand is rising, oil markets are entering a period of uncertainty, and energy efficiency policies require more governmental backing.
The uncertainty means that governments internationally will play a key role in the future direction of the energy sector and its environmental impact, the IEA says. Taking current and planned policies, global energy demand will grow by more than 25 per cent by 2040, requiring more than $2 trillion a year of investment in new energy supply.
Conversely, under a sustainable development scenario modelled by the IEA, global energy-related CO2 emissions peak around 2020 and then enter a steep and sustained decline, fully in line with the trajectory required to achieve the objectives of the Paris Agreement on climate change.
“Our analysis shows that over 70 per cent of global energy investments will be government-driven and as such the message is clear – the world’s energy destiny lies with government decisions,” said Dr Fatih Birol, the IEA’s Executive Director. “Crafting the right policies and proper incentives will be critical to meeting our common goals of securing energy supplies, reducing carbon emissions, improving air quality in urban centers, and expanding basic access to energy in Africa and elsewhere.”
However, most emissions linked to energy infrastructure are already essentially locked-in. In particular, coal-fired power plants, which account for one-third of energy-related CO2 emissions today, represent more than a third of cumulative locked-in emissions to 2040. The vast majority of these are related to projects in Asia, where average coal plants are just 11 years-old on average with decades left to operate, compared with 40 years on average age in the United States and Europe.
“We have reviewed all current and under-construction energy infrastructure around the world – such as power plants, refineries, cars and trucks, industrial boilers, and home heaters – and find they will account for some 95 per cent of all emissions permitted under international climate targets in coming decades,” said Dr Birol.
“This means that if the world is serious about meeting its climate targets then, as of today, there needs to be a systematic preference for investment in sustainable energy technologies. But we also need to be much smarter about the way that we use our existing energy system. We can create some room for maneuver by expanding the use of Carbon Capture Utilization and Storage, hydrogen, improving energy efficiency, and in some cases, retiring capital stock early. To be successful, this will need an unprecedented global political and economic effort.”
The IEA says that renewables have become the technology of choice in power markets and will make up almost two-thirds of global capacity additions to 2040, thanks to falling costs and supportive government policies. This is transforming the global power mix, with the share of renewables in generation rising to over 40 per cent by 2040, from 25 per cent today, even though coal remains the largest source and gas remains the second-largest.