Limiting global warming to 1.5 degrees Celsius by 2050 remains a target that the world’s economies are not hitting, as current progress is expected to lead to a 2.5 degrees Celsius rise, according to Wood Mackenzie.
In its latest Energy Transition Outlook, the consultancy said the world is not on track to meet energy transition objectives and is likely to overshoot the Paris agreement targets by a notable amount, unless more decisive action is taken this decade.
Under its base case scenario — modelled on the evolution of current policies — global warming would reach 2.5 degrees Celsius by 2050, well above the goal of keeping it to no more than 1.5 degrees Celsius, said Simon Flowers, chief analyst at Wood Mackenzie.
“The war in Ukraine has highlighted the extent to which [the] global economy still depends on fossil fuels for energy security,” he told reporters.
“Emissions don’t fall below 2022 level for almost a decade [in our modelling]: that is a manifestation of energy security.”
Net zero objectives
Achieving the Paris agreement net zero objectives is still possible, Wood Mackenzie believes.
For that to happen, low-carbon power supply and infrastructure needs to scale up “at twice the pace” of deployment seen in the last decade.
“Low-carbon energy has grown by one-third since 2015 but energy demand has grown faster,” said Flowers.
The annual global spend needs to increase by 150% to achieve net zero, the consultancy estimated.
That would mean moving from a current annual investment of $1.9 trillion — a large part of which is still devoted to oil and gas — to $2.7 trillion, most of it in low-carbon energy sources.
As much as 75% of that spending would need to be focused on power supply and infrastructure, including renewables and transmission systems.
“A lot of expansion is needed in transmission and distribution,” said Prakash Sharma, global head of scenarios at Wood Mackenzie, to keep up with the growth in power demand and electrification of energy needs, which are forecast to be cornerstones of the transition.
The consultancy said a global price on carbon emissions is necessary to close the gap between jurisdictions’ differing regulations and drive adoption of transition practices, especially in heavy industry, including steel, cement and chemicals.
Seven key markets
Seven major markets — the UK, the European Union, the US, Japan, South Korea, China and India — account for 70% of annual global emissions.
To ensure the net zero objectives remain within reach, these seven markets need to outperform their targets and achieve their Paris agreement objectives earlier, to make up for the other countries that are moving at a slower pace.
The consultancy also expanded on the role of natural gas as part of the transition. While oil and gas demand as a whole is forecast to peak within 10 to 15 years and then enter “a long-term decline”, Flowers maintained that there is a “very solid role for natural gas” to displace dirtier energy sources, and to act as backup supply.
“We see gas will provide resilience and capacity as the world adapts to new sources of energy supply,” he said, describing the outlook for gas as “resilient”.
In Europe, the intermittency of renewable generation will require gas power to step in as needed.
In Asia, according to Sharma, coal-to-gas switching is seen as a crucial step: “That needs to happen to stabilise emissions, so gas demand in Asia will continue to grow.”
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