The International Energy Agency (IEA) called the approaching 2021 United Nations Climate Change Conference, known as COP26, “pivotal” and said it has designed its World Energy Outlook 2021 report (WEO-21) as a handbook for the conference. The IEA said the 2021 version of the report delivers stark warnings about where today’s policy settings are taking the world but added that the warnings are offset with pragmatic and objective analysis of how limit global warming to 1.5°C and avoid the worst effects of climate change.
“With emissions, climate disasters, and energy market volatility all rising, governments need to send an unmistakable signal of clean energy ambition and action at COP26 to accelerate the transition,” the IEA said. The WEO-21 analysis reveals that, despite the emergence of a new low-carbon economy, the progress is still far too slow to put global emissions into a sustained decline toward net zero. Instead, the report says, global consumption of coal and oil is growing strongly this year, pushing carbon dioxide (CO2) emissions toward their second-largest annual increase in history.
“The world’s hugely encouraging clean energy momentum is running up against the stubborn incumbency of fossil fuels in our energy systems,” said Fatih Birol, IEA’s executive director. “Governments need to resolve this at COP26 by giving a clear and unmistakable signal that they are committed to rapidly scaling up the clean and resilient technologies of the future. The social and economic benefits of accelerating clean energy transitions are huge, and the costs of inaction are immense.”
Market Uncertainty and Volatility Exacerbate the Situation
“There is a looming risk of more turbulence for global energy markets,” Birol said. “We are not investing enough to meet future energy needs, and the uncertainties are setting the stage for a volatile period ahead.”
“Today’s climate pledges would result in only 20% of the emissions reductions by 2030 that are necessary to put the world on a path towards net zero by 2050,” Birol continued. “Reaching that path requires investment in clean energy projects and infrastructure to more than triple over the next decade. Some 70% of that additional spending needs to happen in emerging and developing economies, where financing is scarce and capital remains up to seven times more expensive than in advanced economies.”
Spending on oil and natural gas has been depressed by price collapses in 2014 to 2015 and again in 2020. As a result, it is geared toward a world of stagnant or even falling demand. At the same time, spending on clean energy transitions is far below what would be required to meet future needs in a sustainable way.
The way to address this mismatch is clear, according to WEO-21: a major boost in clean energy investment, across all technologies and all markets. But it needs to happen quickly.
What’s at Stake and What Needs to Happen
The WEO-21 spells out what its authors say is at stake—what the pledges to reduce emissions made by governments so far mean for the energy sector and the climate—and what needs to be done to move beyond these announced pledges to reach net zero emissions globally by mid-century. Here are a few highlights.
Additional scenarios for limiting warming. The Net Zero Emissions by 2050 scenario from the landmark IEA report published in May laid out a narrow but achievable pathway consistent with limiting the rise in global temperatures to 1.5°C. The 2021 report considers two other scenarios to gain insights into how the global energy sector may develop over the next 3 decades and what the implications would be.
- The Stated Policies Scenario represents a path based on the energy and climate measures governments have already put in place to date, as well as specific policy initiatives that are under development. In this scenario, almost all the net growth in energy demand through 2050 is met by low-emissions sources, but that leaves annual emissions still around today’s levels. As a result, global average temperatures are still rising when they hit 2.6°C above preindustrial levels in 2100.
- The Announced Pledges scenario assumes that the net-zero emissions pledges announced by governments so far are implemented in time and in full. In this scenario, demand for fossil fuels peaks by 2025 and global CO2 emissions fall by 40% by 2050. All sectors see a decline, with the electricity sector delivering by far the largest. The global average temperature rise in 2100 is held to around 2.1°C.
For the first time in a WEO report, oil demand goes into eventual decline in all the scenarios, although the timing and speed of the drop vary widely. If all of today’s announced climate pledges are met, the world would still be consuming 75 million B/D of oil by 2050—down from around 100 million B/D today—but that number would plummet to 25 million B/D in the Net Zero Emissions by 2050 scenario. Natural gas demand increases in all scenarios over the next 5 years, with sharp divergences after that.
After decades of growth, the prospects for coal power declines in the Announced Pledges scenario. That decline could be accelerated further by China’s recent announcement of an end to its support for building coal plants abroad. That move may result in the cancellation of planned projects and savings of some 20 billion tons in cumulative CO2 emissions through 2050—an amount similar to the total emissions savings from the European Union reaching net zero by 2050.
Extra investment will be less burdensome than it might appear. More than 40% of the required emissions reductions would come from measures that are highly effective and that pay for themselves, such as improving efficiency, limiting gas leakage, or installing wind or solar in places where they are now the most competitive electricity generation technologies.
The investment will create huge economic opportunities. Successfully pursuing net zero would create a market for wind turbines, solar panels, lithium-ion batteries, electrolyzers, and fuel cells of well over $1 trillion a year by 2050, comparable in size to the current oil market, while creating millions of new jobs. Even in a much more electrified energy system, major opportunities remain for fuel suppliers to produce and deliver low-carbon gases. In the Announced Pledges scenario alone, an additional 13 million workers would be employed in clean energy and related sectors by 2030, while that number doubles in the Net Zero Emissions by 2050 scenario.
