bneGREEN: Carbon emissions to peak in “historic turning point” IEA says

bneGREEN: Carbon emissions to peak in “historic turning point” IEA says
The IEA said that the war in Ukraine and resulting energy crisis has been a blessing in disguise: western governments will now pour money into renewables and the world should pass peak emissions by as soon as 2025. The Paris Accord targets. however, will be missed with dire consequences. / bne IntelliNews
By Ben Aris in Berlin October 28, 2022

Global carbon emissions will peak in 2025 as the world reaches a “historic turning point” and governments pour investment into renewables to counteract the energy crisis that has gripped the world this year.

Those are the conclusions in a report from the International Energy Agency (IEA) released on October 27 that takes in the impact of the war in Ukraine and the Kremlin’s limiting of gas supplies to Europe.

"The global energy crisis could be a historic turning point in the transition to a cleaner and safer future," the IEA concluded.

Energy prices have jumped to as much as twenty-times historical levels after Russia cut off gas supplies this year and mysterious explosions destroyed the Nord Stream gas pipelines in September. Russia supplied 155bn cubic metres of gas to Europe, about a third of its needs, but now the race is on to replace the Russian gas with alternative sources of energy and that has catalysed EU plans to become net zero by 2055 in its Fit For 55 programme.

The Russian invasion of Ukraine will be a turning point for the global energy market, the IEA says. Renewable energy will grow and the global demand for hydrocarbons will now plateau, the IEA predicts. Russia's share in the global oil and gas market will fall by 50% by 2030, while Capital Economics forecasts Russia oil production will drop 10%, or by 1mn barrels per day (bpd), in 2023 alone.

“Today’s energy crisis is delivering a shock of unprecedented breadth and complexity. The biggest tremors have been felt in the markets for natural gas, coal and electricity – with significant turmoil in oil markets as well, necessitating two oil stock releases of unparalleled scale by IEA member countries to avoid even more severe disruptions. With unrelenting geopolitical and economic concerns, energy markets remain extremely vulnerable, and the crisis is a reminder of the fragility and unsustainability of the current global energy system,” the World Energy Outlook 2022 (WEO) warns.

The war in Ukraine has led to a complete transformation of Europe’s energy market. With a total ban on the import of Russian oil products due to come into effect on December 5 and gas supplies already massively reduced, Russia will have to reorientate its energy transport infrastructure from west to east. Russia’s gas pipelines and oil tankers overwhelmingly serve European markets. While tankers can be redirected to markets in Asia, the building of new gas pipelines to China will take at least until the end of this decade and sanctions have limited Russia’s ability to expand its LNG production.

Investing into green energy

The crisis has forced the governments of the world’s largest countries – the United States, the European Union, Japan, South Korea, China and India – to also want to change their sources of energy and accelerate their efforts to switch to renewables, which has now become a national security issue as well as a climate crisis issue.

The total value of all declared green projects will grow by 50% by 2030 to $2 trillion a year. Renewables are set to dominate global capacity additions, accounting for 75-80% of all new capacity to 2050, led by solar PV and wind, the report says.

Fatih Birol, the IEA’s executive director, said the energy crisis caused by Russia’s war in Ukraine “is in fact going to accelerate the clean energy transition”. “The golden age of gas is approaching the end,” Birol said.

Part of this investment is being driven by new ambitious legislation that boosts spending and support for green investments. The IEA highlighted the US Inflation Reduction Act and the EU’s Fit for 55 package and REPowerEU initiatives as particularly important.

Supply chains for some key technologies – including batteries, solar PV and electrolysers – are also expanding at rates that support greater global ambition, according to the IEA.

“If all announced manufacturing expansion plans for solar PV see the light of day, manufacturing capacity would exceed the deployment levels in the Announced Pledges Scenario in 2030 by around 75%. In the case of electrolysers for hydrogen production, the potential excess of capacity of all announced projects is around 50%,” the report says.

The IEA annual report included a baseline scenario that assumes that global demand for fossil fuels will peak around 2025, after which it will begin to fall. This is the first time that an IEA report has included a forecast where fossil fuel use will plateau or decline as its base case for each of the three main fossil fuels. Coal use will peak in a few years’ time. Gas use will peak by the end of the 2020s. And oil use will peak in the mid-2030s. The share of fossil fuels in total energy consumption, which has long remained at 80%, will also begin to fall to 75% by 2030 and to 60% by 2050.

The acceleration of the phasing out of coal, gas and oil improves the outlook for emissions and global climate change. The coronavirus (COVID-19) pandemic saw emissions fall dramatically in the last two years as economies went into lockdown, but the post-coronavirus economic bounce-back was stronger than many anticipated and the global emission of GHGs soared to fresh record levels in 2021, undoing all the gains made, the International Monetary Fund (IMF) reported in July.

The IEA's base case assumes that CO2 emissions will hit a historic high of 37bn tonnes in 2025, five years earlier than previously predicted. After that, they should begin to decline and by 2050 they will have fallen to 32bn tonnes. Under this scenario, global average temperatures would rise by about 2.5°C by 2100, 1° better than estimated a few years ago, the IEA notes.

Missed targets

Nevertheless, even this reduction in emissions means that the Paris Accord targets will be missed, and the climate will suffer serious damage. The $2 trillion a year of announced projects remains about half of what is needed. Annual clean energy investment would have to reach $4 trillion by 2030 to hit the net-zero carbon emissions target by 2050.

“And major international efforts are still urgently required to narrow the worrying divide in clean energy investment levels between advanced economies and emerging and developing economies,” the IEA highlighted saying more investors need to be attracted to the energy sector.

“This means redoubling efforts to ensure that a broad coalition of countries has a stake in the new energy economy. The journey to a more secure and sustainable energy system may not be a smooth one. But today’s crisis makes it crystal clear why we need to press ahead,” Birol added.

The IEA estimate that temperatures will rise by 2.5C by 2050 is still well above the 1.5C increase above pre-industry levels agreed in Paris. Anything above this will have severe effects on the climate, including more extreme weather events that have plagued the world in the last year.

A separate UN study, published the same day, also found that government pledges so far to cut emissions will lead to 2.5C of global warming.

Reducing emissions will still be difficult, as some countries are not participating in the climate crisis efforts, while those that are remain susceptible to pressure from lobby groups.

As bne IntelliNews reported, an orbital Nasa instrument has detected large, worldwide emissions of methane, a potent greenhouse gas (GHG). “Super-emitters” were identified in countries such as Turkmenistan and Iran. Methane is 27 times more harmful to the climate than CO2.

The EU is also ignoring its own methane problem, most of which derives from agriculture – particularly livestock – and is on track to break a promise to cut methane emissions by 30% by 2030 made due to a “policy vacuum” on livestock emissions, The Guardian reports. EU has avoided using policy levers such as its €387bn common agricultural policy to directly tackle the problem, according to the report by the Changing Markets Foundation, under pressure from the powerful agricultural lobby.

Methane emissions rose by the most ever to set a new record last year, according to the National Oceanic and Atmospheric Observatory, and the gas is responsible for a fifth of the global warming effects.

Russia’s energy export outlook is poor

The outlook for Russian energy exports is poor, according to the IEA. Russia has failed to commit to the green revolution, but the effects on the development of Russia’s energy system of the Ukrainian war will be dramatic. Russia will see total losses to its budget of $1 trillion by 2030, the IEA says.

China is the only market that is big enough to absorb most the gas that Russia used to export to Europe, but even that market is not big enough to absorb it all. According to the IEA, in the 2020s, gas consumption in China will grow by an average of 2% per year (in the 2010s it grew by 12% per year).

Compared to the report from 2021, the IEA has reduced the forecast for oil production in Russia by 2mn bpd by 2025 and natural gas production by 200 bcm per year. Russia’s piped gas exports have already fallen by 80% this year after the shutdown of the Nord Stream pipelines in September.

“Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for the time being, but for decades to come,” said Birol. “Even with today’s policy settings, the energy world is shifting dramatically before our eyes. Government responses around the world promise to make this a historic and definitive turning point towards a cleaner, more affordable and more secure energy system.”

The IEA says that Russia’s gas exports will never return to 2021 levels and will fall by exactly 50% by 2030. Russia's share in the global gas market will fall from 30% in 2021 to 15% in 2030 in the base case and to 10% in the optimistic one. The export revenue the Kremlin earns from gas exports will shrink from the pre-war $75bn a year to less than $30bn in the IEA’s optimistic scenario. Russian oil exports will also drop by 25% by 2030 and by 40% by 2050.

Europe will be able to replace most of the lost Russian oil imports with Middle Eastern suppliers, but some will also go to North America, which by the mid-2020s will overtake Russia in the world’s oil market share.