Governments need to adopt well-designed energy policies that can put the world on track to meet climate goals, as uncertainties over the coronavirus pandemic’s duration and impacts have opened up varied possibilities for how the energy sector will evolve, the International Energy Agency (IEA) warned Tuesday.
It remains unclear whether the “upheaval” caused by the Covid-19 pandemic will “ultimately help or hinder efforts to accelerate clean energy transitions”, the IEA said in its annual World Energy Outlook report.
However, the report suggests that global energy demand in 2020 is set to drop by 5%, energy-related CO2 emissions by 7%, and energy investment by 18%.
“The estimated falls of 8% in oil demand and 7% in coal use stand in sharp contrast to a slight rise in the contribution of renewables,” the IEA said. “The reduction in natural gas demand is around 3%, while global electricity demand looks set to be down by a relatively modest 2% for the year.”
‘Faster structural changes’ needed
Initial signs suggest the energy sector still needs to do more to curb its methane emissions, even though oil and gas output are lower this year.
“The economic downturn has temporarily suppressed emissions, but low economic growth is not a low-emissions strategy – it is a strategy that would only serve to further impoverish the world’s most vulnerable populations,” said the IEA’s executive director, Fatih Birol.
“Only faster structural changes to the way we produce and consume energy can break the emissions trend for good,” he said. “Governments have the capacity and the responsibility to take decisive actions to accelerate clean energy transitions and put the world on a path to reaching our climate goals, including net-zero emissions.”
A significant part of these efforts would have to focus on reducing emissions from existing infrastructure – such as coal plants, steel mills and cement factories, the IEA said.
“Otherwise, international climate goals will be pushed out of reach, regardless of actions in other areas,” the agency warned.
It added that if today’s energy infrastructure continues to operate in the same way as it has done so far, it would lock in a temperature rise of 1.65 degrees Celsius.
“Electrification, innovation, behaviour changes and massive efficiency gains would all play roles,” the IEA said. “No part of the energy economy could lag behind, as it is unlikely that another would be able to move fast enough to make up the difference.”
In the agency’s Stated Policies Scenario, which reflects the IEA’s announced policy intentions and targets, global energy demand rebounds to its pre-crisis level in early 2023.
However, this does not happen until 2025 in the event of a prolonged pandemic and deeper slump, as shown in the IEA’s Delayed Recovery Scenario.
“Slower demand growth lowers the outlook for oil and gas prices compared with pre-crisis trends. But large falls in investment increase the risk of future market volatility,” the IEA said.
Demand for natural gas grows significantly in its Stated Policies Scenario, mainly in Asia, while oil remains vulnerable to the major economic uncertainties resulting from the pandemic.
“The era of global oil demand growth will come to an end in the next decade,” Birol said. “But without a large shift in government policies, there is no sign of a rapid decline. Based on today’s policy settings, a global economic rebound would soon push oil demand back to pre-crisis levels.”
Growth of renewables
Meanwhile, renewables take starring roles in all IEA scenarios, with solar seen as the main source of growth, followed by onshore and offshore wind – meeting 80% of global electricity demand growth over the next decade.
“I see solar becoming the new king of the world’s electricity markets. Based on today’s policy settings, it is on track to set new records for deployment every year after 2022,” Birol said. “If governments and investors step up their clean energy efforts in line with our Sustainable Development Scenario, the growth of both solar and wind would be even more spectacular – and hugely encouraging for overcoming the world’s climate challenge,” Birol said.
In the agency’s Sustainable Development Scenario, which shows how to put the world on track to achieve sustainable energy objectives in full, the outlook also includes a major scaling up of hydrogen and carbon capture, utilisation and storage, and new momentum behind nuclear power.