Pursuing a 2°C pathway

Many uncertainties exist concerning the future of energy demand and supply, including potential actions that societies may take to address the risks of climate change.

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Pursuing a 2°C pathway

Since 1992, when nations around the world established the United Nations Framework Convention on Climate Change (UNFCCC), there has been an international effort to assess the risks of climate change.

After more than two decades of international effort, in December 2015, nations convened in Paris and drafted an agreement that for the first time signaled that both developed and developing nations will strive to undertake action on climate change and report on related progress.

The Paris Agreement1 “aims to strengthen the global response to the threat of climate change … by: Holding the increase in the global average temperature to well below 2°C above pre-industrial levels...”

Key elements of the agreement include: 

  • “Each party shall prepare, communicate and maintain successive nationally determined contributions that it intends to achieve.” 
  • “Each party shall communicate nationally determined contributions every five years.”

The nationally determined contributions (NDCs) provide important signals on government expectations related to the general direction and pace of likely policy initiatives to address climate change risks.4 In this regard, the United Nations Environment Programme (UNEP) reported in November 2018 that, “Pathways reflecting current NDCs imply global warming of about 3°C by 2100, with warming continuing afterwards.” Additionally, the report states, “The majority [of G20 countries] are not yet on a path that will lead them to fulfilling their NDCs for 2030.”2  In other words, the current NDCs are insufficient to meet the aim of the Paris Agreement, and moreover, not all countries are yet

The Climate Challenge

Considering 2ºC scenarios

Exploring potential pathways to a 2oC world

According to the IEA, a “well below” 2°C pathway implies “comprehensive, systematic, immediate and ubiquitous implementation of strict energy and material efficiency measures.”5  Given a wide range of uncertainties, no single pathway can be reasonably predicted. A key unknown relates to advances in technology that may influence the cost and potential availability of certain pathways toward a 2°C scenario. Scenarios that employ a full complement of technology options are likely to provide the most economically efficient pathways.

Considerable work has been done in the scientific community to explore potential energy pathways. A comprehensive multi-model study coordinated by the Energy Modeling Forum 27 (EMF27) at Stanford University3 brought together many energy-economic models to assess possible technology and policy pathways associated with various climate stabilization targets (e.g., 450, 550 ppm CO2 equivalent or CO2e), partially in support of the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC).

Emission and energy profiles for assessed 2°C scenarios

The chart (right) illustrates potential global CO2 emission trajectories under EMF27 full technology scenarios6 targeting a 2°C pathway (assessed 2°C scenarios) relative to the 2019 Outlook, and relative to the EMF27 baseline pathways with essentially no policy evolution beyond those that existed in 2010.

The chart (lower right) illustrates potential global energy demand in 2040 under the assessed 2°C scenarios. The scenarios suggest that predicting absolute 2040 energy demand levels in total and by energy type carries some uncertainty, with particular scenarios likely heavily influenced by technology and policy assumptions. Differences in these scenarios help put in perspective the uncertainty in the pace and breadth of changes in the global energy landscape.

For comparison purposes, the chart (lower right) also includes energy demand projections in 2040 based on the IEA’s Sustainable Development Scenario (SDS) published as part of the 2018 WEO. The IEA specifically notes that its SDS projects global energy-related CO2 emissions that are “fully in line with the trajectory required to meet the objectives of the Paris Agreement on climate change.” In fact, the SDS projects global energy-related CO2 emissions in 2040 at a level 50 percent lower than the IEA’s New Policies Scenario (NPS), which projects emissions generally in line with the aggregation of national commitments under the Paris Agreement.

Global energy-related CO2 emissions

Billion tonnes

2040 global demand by model by energy type in the assessed 2oC scenarios and the IEA SDS

Exajoules

All energy types remain important in assessed 2oC scenarios

The EMF27 full-technology scenarios also show a range of possible growth rates for each type of energy. We have taken the average of the scenarios’ growth rates in order to consider potential impacts on energy demand for this report.7

Based on this analysis, primary energy demand on a worldwide basis is projected to increase about 0.5 percent per year on average from 2010 to 2040. Expected demand and technologies deployed in 2040 vary by model and energy type (see 2°C chart on prior page and growth rates to the right):

  • Oil demand is projected on average to decline by about 0.4 percent per year, while natural gas demand is expected on average to increase about 0.9 percent per year. Together their share of energy demand is projected on average to still be more than 40 percent by 2040
  • The trend in demand for coal is the most negative, with an average decline of 2.4 percent per year, or about a 50 percent decline by 2040
  • The projected growth for renewables and nuclear are quite strong, averaging 4.5 percent per year for non-bioenergy (e.g., hydro, wind, solar) and about 3 percent per year for nuclear
  • Bioenergy demand is projected on average to grow at about 4.3 percent per year, the highest growth among all energy sources alongside non-bio renewables
  • Carbon Capture and Storage (CCS) is a key technology to address CO2 emissions, with its projected share of energy demand on average nearly double that of non-bio renewables by 2040

All energy sources remain important across all the assessed 2°C scenarios. Though the mix of energy and technology shifts over time, oil and natural gas remain important sources. Oil demand is projected to decline modestly on average, and much more slowly than its natural rate of decline from existing producing fields. Natural gas demand grows on average due to its many advantages, including lower GHG emissions as compared to coal.

EMF27-450-FT: Global demand by energy type

Average annual growth rates 2010-2040

This chart shows the average growth rate and the range of growth rates for primary energy demand and each type of energy across the scenarios.

In addition to looking at average growth rates, low-side energy growth rates for the scenarios were also considered. The low-side by energy source sees oil dropping 1.7 percent per year, natural gas dropping 0.8 percent per year, and coal dropping 10.2 percent per year through 2040. This is compared with high-side growth rates for bioenergy, nuclear and non-bio renewables of 14.1, 4.8 and 6.3 percent per year, respectively. Even under these extremes, oil and gas remain important parts of the energy mix.

Potential investment implications

Investing to meet Oil and Gas demand

With oil and gas a key part of the future energy mix across all of the assessed 2oC scenarios, it is important to consider the investments needed to meet society’s demand.

Without continued investment to sustain existing producing fields and develop new resources, the supply of oil and natural gas declines, with oil supply naturally declining at an estimated 7 percent per year, and natural gas declining at an estimated 5 percent per year. As shown in the charts on the right, these decline rates create a significant need for continuous investment just to sustain existing production levels observed in 2017.

The top chart shows that the natural rate of decline for oil far exceeds the range of demand projections in the assessed 2oC scenarios out to 2040. Similarly, the bottom chart shows that the natural rate of decline for gas also far exceeds the range of demand projections, which showed an average increase in demand over the period. Ceasing to invest in either oil or gas could lead to a significant supply shortfall versus what is needed to meet global demand, both for the near term and for the broad range of scenario demand projections.

The IEA’s 2018 World Energy Outlook estimates that significant oil and gas investment is needed to meet growing demand across a broad range of scenarios out to 2040. They estimate more than $13 trillion of investment is needed in their Sustainable Development Scenario, and almost $21 trillion would be needed in their New Policies Scenario.

Oil demand and supply warrant investment

World – MBDOE

Excludes biofuels; Source: IEA, EM analyses

Assessed 2oC scenarios based on EMF27 full technology/450ppm cases targeting a 2oC pathway

Natural gas demand and supply warrant investment

World – BCFD

Source: IHS, EM analyses Assessed

2oC scenarios based on EMF27 full technology/450ppm cases targeting a 2oC pathway

Seeking practical solutions

There are no easy answers to the dual challenge of simultaneously meeting global energy demand while addressing the risks of climate change. Billions of people still lack access to modern energy; they struggle to improve their living standards and reduce the negative health impacts of energy poverty. At the same time, there is growing recognition among parties that emission reductions are not yet sufficient to achieve a 2oC pathway.2

Effectively addressing this dual challenge will require practical, cost-effective solutions. Cost is an important consideration as it is estimated that currently nearly 2 billion people (~30 percent of the population), live on less than $1,200 per year.8 Even a minor increase in cost of living is problematic for this vulnerable population. Awareness of this enduring economic, energy and environmental disparity across the globe is a reminder of the need to develop practical and economic solutions for addressing the risks of climate change.

Opportunities exist worldwide across all sectors to reduce energy-related emissions. The chart on the lower right shows 2017 energy-related CO2 emissions across the sectors and highlights where new solutions can have the largest impact in reducing emissions.

Addressing the dual challenge across all of these sectors requires progress in four key areas:

  1. Boosting energy efficiency
  2. Shifting the energy mix to lower-carbon sources
  3. Adopting policies to promote cost-effective solutions
  4. Investing in research and development to advance technology

Boosting energy efficiency

Capturing the most cost-effective efficiency gains will become even more important to spare society an unnecessary economic burden associated with high cost options to reduce emissions. Boosting efficiency will require effective investments and sound policies to promote them. These investments often create a win-win situation because the lower energy consumption reduces both emissions and consumers’ energy bills.

Opportunities to boost efficiency are many and varied, ranging from better equipment (e.g., light bulbs, vehicles, appliances) to improved building designs, to better manufacturing techniques in industrial applications. Importantly, not all of the same mechanisms apply across all energy sectors.

Shifting the energy mix to lower-carbon sources

Shifting the CO2 emissions intensity of the energy mix to lower levels, while keeping energy reliable and affordable, also requires investment. Power generation has the most commercially developed lower-carbon alternatives: natural gas, bioenergy, renewables, nuclear, CCS. Options at commercial scale are currently more limited for the industrial and commercial transportation sectors, which represented nearly half of energy-related CO2 emissions in 2017, and have projected strong demand growth out to 2040, making these sectors challenging to decarbonize. New technology solutions (such as advanced biofuels, hydrogen and novel batteries) will be required.

2017 global population and poverty

Billions of people (poverty line at $3.20 per day per person)

2017 energy-related CO2 emissions by sector

Adopting policies to promote cost-effective solutions

To help speed the application of practical and cost-effective solutions across the energy system, open and informed discussions will help clarify the potential and relative value of available options. Further, policy frameworks that promote better transparency on costs and benefits of options and rely on market-based solutions are needed.

An economy-wide price on carbon, whether based on a tax, trading mechanisms or other market-based measures, can lead to cost-effective emissions reduction. As the IEA has noted, clear price signals have advantages, including that “higher prices stimulate consumers to reconsider their energy consumption and make savings where this can be done most cheaply, whereas regulation through mandatory standards may not be the least-cost or most effective approach.”9

Investing in research and development to advance technology

Technology advances will also be important to help minimize the costs of reducing emissions while also delivering increased access to reliable and affordable energy. However, the International Energy Agency in 2019 estimated in its Tracking Clean Energy Progress analysis that only 7 of 45 technologies are on track to help society reach the Paris Agreement climate goals.10 Electric Light-duty Vehicles, one technology highlighted by the IEA, are on track to meet the IEA’s Sustainable Development target, but light-duty transportation is just one sector and represented less than 10 percent of global energy demand and emissions in 2017. Advancing technology for cost-effective solutions will be critical to pursue a 2oC pathway while helping keep energy reliable and affordable for a growing population.

As the graphic below shows, expanding technology options through research and development can play a role in reducing the costs borne by society to lower emissions while still meeting energy needs. Existing technologies, like wind, solar and natural gas with CCS, play important roles in hypothetical 2oC pathways, but advances are needed to further reduce their costs so that increased use does not raise electricity costs for consumers.

Further breakthroughs are needed to develop and deploy new solutions at commercial scale across all sectors. The table to the right highlights some areas where these breakthroughs are needed. For example, improving the design and function of power grids or achieving cost-effective long duration storage (i.e., seasonal storage) could allow higher penetration of variable renewables like wind and solar.

For commercial transportation, advanced biofuels that do not compete with the food chain could provide a new lower carbon solution, but technology breakthroughs are needed to lower land-use and costs to produce.

Technology key to reducing societal costs of 2oC pathway

Costs borne by society to lower GHG emissions

Technologies that could achieve “negative emissions”, such as direct air capture or bioenergy with carbon capture, were found to be an important part of the assessed 2oC scenarios. Many of these scenarios employed negative emissions where possible to offset harder and more costly to decarbonize sectors like industrial and transportation.

Without expanding the existing technology options, the stringency of policies and their related costs to society could increase. If society pushes back on some of these policies, it could risk setbacks on climate progress. Technology advances combined with sound policies improve society’s chances of achieving the goals of the Paris Agreement.

Keeping options open

Transformation of the world’s energy system as envisioned by a 2oC scenario is unprecedented. Therefore, it is understandable that governments, businesses and individuals exercise care in weighing the potential implications. The world cannot afford to prematurely foreclose options or negate reliable, affordable and practical energy systems upon which billions of people depend.

Practical solutions to the world’s energy and climate challenges will benefit from market competition as well as well-informed, well-designed and transparent policy approaches that carefully weigh costs and benefits. Such policies are likely to help manage the risks of climate change while also enabling societies to pursue other high priority goals around the world – including clean air and water, access to reliable, affordable energy, and economic progress for all people.

Sources

  1. https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement
  2. UNEP (2018). The Emissions Gap Report 2018. United Nations Environment Programme, Nairobi, page XIV and XV, http://wedocs.unep.org/bitstream/handle/20.500.11822/26895/EGR2018_FullReport_EN.pdf?sequence=1&isAllowed=y
  3. EMF was established at Stanford in 1976 to bring together leading experts and decision makers from government, industry,universities, and other research organizations to study important energy and environmental issues. For each study, the Forum organizes a working group to develop the study design, analyze and compare each model’s results and discuss key conclusions. https://emf.stanford.edu/about. EMF is supported by grants from the U.S. Department of Energy, the U.S. Environmental Protection Agency as well as industry affiliates including ExxonMobil. https://emf.stanford.edu/industry-affiliates
  4. UNFCC website: https://unfccc.int/process/the-paris-agreement/nationally-determined-contributions/ndc-registry
  5. IEA, Perspectives for the Energy Transition, page 57
  6. To understand some of the characteristics of future transition pathways, we analyzed energy and emissions data from a range of EMF27 stabilization, policy and technology targets, primarily focusing on 450 and 550 stabilization targets, as well as no policy cases that utilize a full suite of technologies. The suite of full technologies (FT) includes a range of options, including: energy efficiency, nuclear, carbon capture and storage (CCS), biofuels and non-bio renewables such as solar and wind. The EMF27 study considered other technology-limited scenarios, but a key finding was that the unavailability of carbon capture and storage and limited availability of bioenergy had a large impact on feasibility and cost. Given the potential advantages to society of utilizing all available technology options, we focused on capturing the results of different EMF27 models that ran 450-FT cases; we were able to download data for 13 such scenarios, and utilized that data as provided for analysis purposes (most of the scenarios had projections extending to 2100). Data downloaded from: https://secure.iiasa.ac.at/web-apps/ene/AR5DB
  7. The assessed 2°C scenarios produce a variety of views on the potential impacts on global energy demand in total and by specific types of energy, with a range of possible growth rates for each type of energy as illustrated in this report. Since it is impossible to know which elements, if any, of these models are correct, we used an average of all 13 scenarios to approximate growth rates for various energy types as a means to estimate trends to 2040 indicative of hypothetical 2°C pathways.
  8. Poverty rates by region at $3.20/day in 2011 Purchasing Power Parity pulled from the World Bank’s 2018 report on Poverty and Shared Prosperity. These rates were applied to 2017 population to estimate population below the poverty line.
  9. IEA, World Energy Outlook 2016, page 290
  10. International Energy Agency, Tracking Clean Energy Progress, Retrieved from https://www.iea.org/tcep/ 

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