The present turbulence in energy markets is not inconsequential, however. Europe will transition to arenewables-dominated power system more rapidly, but higher energy prices may dampen investment in clean energy elsewhere. These two effects tend to offset each other globally over time. Supply-chain disruptions will continue in the shorter term, delaying the global EV ‘milestone’ (when the EV share of new vehicle sales surpasses 50%) by one year in our forecast — to 2033. But here too there are compensatory developments, where high prices will encourage energy-saving behaviour among power consumers. For aviation, we also forecast a permanent reduction of 7% in annual passenger trips due to pandemic-related changes in work habits. This year, our forecast sees non-fossil energy nudge slightly above 50% of the global energy mix by 2050. The principal underlying dynamic is rapid electrification, with supply climbing from 27 PWh/yr now to 62 PWh/yr in 2050. We detail how this leads to enormous energy-efficiency gains in power generation and end-use. We are entering a prolonged period where efficiency gains in our energy system outstrip the rate of economic growth. Over the long term this means the world will spend significantly less on energy as a proportion of GDP. In theory, that should provide policymakers with confi-dence to accelerate the transition.
Electricity remains the mainstay of the transition; it is growing and greening everywhere The strongest engine of the global energy transition is electrification, expanding in all regions and almost all sectors, while the electricity mix itself is greening rapidly. Electricity production will more than double, with the share of electricity rising from 19% to 36% in the global energy mix over the next 30 years. In addition, electricity will take over and dominate hydrogen production. The share of fossil fuels in the electricity mix reduces sharply from the present 59% to only 12% in 2050. Solar PV and wind are already the cheapest forms of new electricity in most places, and by 2050 it will grow 20-fold and 10-fold, respectively. Solar PV takes a 38% share of electricity generated in 2050 and wind 31%. Nuclear will only manage to slightly increase present production levels due to its high costs and long lead times; its share of the electricity mix will therefore decline. The strong growth of renewables in electricity is the main reason why the fossil-fuel share of total energy use in 2050 is pushed to just below the 50% mark.
We are heading towards 2.2°C warming; war-footing policy implementation is needed to secure net zero by 2050 The Paris Agreement aim of limiting global warming to 1.5°C is still possible, but the window to act is closing. Securing 1.5°C without a temporary carbon overshoot is already out of reach. DNV’s ETO forecast of the ‘most likely’ energy future — one driven by market forces and often dilatory climate policies — results in 2.2°C warming by the end of the century. On their own, technological and market developments are insufficient drivers of the change needed for net zero; war-footing-like policy implementation with massive early action across regions and sectors is needed. Low-income regions need dedicated technology and financial assistance to transition at the required rate. No new oil and gas will be needed after 2024 in high-in-come countries and after 2028 in middle- and low-income countries. However, renewables need to triple and grid investment rise more than 50% over the next 10 years.
ENERGY DEMAND The shock to energy demand caused by the pandemic was a forceful reminder that understanding the nature and dimensions of energy demand is fundamental to any energy forecast. This chapters covers developments in the four sectors responsible for almost all energy demand: transport, buildings, manufacturing, and feedstock. Part of our analysis involves a consideration of effects of the pandemic and Russia’s invasion of Ukraine on energy demand. Historically, energy demand has grown in lockstep with GDP — population growth and improvements in standards of living — moderated by efficiency improvements. Global population growth is slowing down and is expected to reach 9.4 billion people in 2050. Economic growth will continue, and the size of the global economy in 2050 will be USD 300 trillion, with an average growth rate of 2.5% from 2019 to 2050. Further details on population and economic growth are included in the annex of this Outlook. More and wealthier people imply ever-more energy services — for transportation, housing, consumer goods and so on. This leads to increased energy demand, unless countered by strong efficiency gains.
The pandemic and energy This Outlook is being released almost 3 years after the SARS-CoV-2 virus was first detected in Wuhan, People’s Republic of China. Although the risk remains of the emergence of an immunity-evading variant, much of the world, with the notable exception of China, is now on a path to COVID-19 as an endemic. However, the pandem-ic’s social and economic impact endures. The present inflationary environment, although exacer-bated by the war in Ukraine, is strongly linked to the pandemic stimulus packages put in place by govern-ments which have driven unemployment to near record lows in many OECD countries, coupled with supply-chain disruptions related directly to COVID-19, and wild swings in consumer spending habits as a consequence of lockdowns. Stimulus packages have also gone directly to energy sector activities. Our previous Outlooks (DNV 2020, DNV 2021) forecast stimulus packages for fossil end renewable industries to be balanced, producing a neutral effect from the pandemic over the longer term. What we see now is that because fossil energy production, especially shale developments, has shorter time delays than the expan-sion of wind and solar supply chains, fossil energy has been the main beneficiary of support schemes, and only 6% of stimulus has gone towards greening and carbon emissions reduction (Nahm et al., 2022). A case in point is Norway’s stimulus package. With an oil and gas sector directly providing 17% of GDP (Hernes et al., 2021), and network effects of a similar scale, support packages favoured fossil industries, keeping workers and engineers active, leading to higher oil and gas production than otherwise would have been the case.
EV uptake The uptake of EVs — passenger EVs first — will occur rapidly. Supported by contemporary findings (Keith et al., 2018), we assume that people choosing to acquire an EV will base their decision on weighing costs against benefits. Within our approach, simulated buyers have the choice between EVs (becoming increasingly cheaper and providing a longer range over time) and ICEVs in the categories: passenger vehicle, commercial vehicle, and two- and three-wheelers. Potential buyers of passenger vehicles will consider purchase price to be the main factor, putting less emphasis on the advanta-geous operating costs. Owners of commercial vehicles will give greater weight to the advantages of EV opera-tional costs. Currently, having too few charging stations within range or at the final destination (e.g. at home or at work) is a major barrier to EV uptake in most regions. Significant uptake of EVs cannot be achieved without both the average fleet range leaping higher and charging-station density increasing. We assume that the current battery cost-learning rate of 19% per doubling of accumulated capacity will continue throughout the forecast period. Consequently, vehicle prices will fall in the long run, in contrast to a near-term increase in the price of EVs due to base material shortages and supply-chain problems. In our view, higher prices will be partly mitigated by rising competition among EV manufacturers and by innovation such as cell-to-body and cell-to-chassis configurations. In Europe, the average battery size will grow from today’s 60 kWh/vehicle to about 90 kWh/vehicle in 10 years, resulting in an expanded vehicle range and EVs seeming even more attractive. Elsewhere, we will see different average battery sizes, depending on regional commuting and thus range needs.
Despite increasing electrification and improvements in the efficiency of thermal insulation and heating/cooling equipment, global energy demand for buildings is set to grow nearly a quarter (24%) in the next three decades, from 120 EJ per year in 2020 to 148 EJ per year in 2050. The sector’s share in final energy demand is also expected to grow slightly from 29% now to 30% by mid-century. This is mainly driven by an increase in population and therefore in floor area demand, as well as a rise in per capita incomes leading to growing demand for space cooling and other electric appliances. Global warming further intensifies the demand for cooling. However, thanks to significant energy efficiency gains, energy demand will not grow as fast as what would have been implied by trends in population, incomes, and average temperatures. In 2020, 29% of the world’s total final energy and 48% of global electricity was consumed in buildings. About three-quarters (88 EJ) of this final energy demand was in residential buildings, and the rest (32 EJ) in commercial buildings including private and public workspaces, hotels, hospitals, schools, and other non-residential buildings. Total CO2 emissions from this sector, including indirect emissions associated with electricity and hydrogen production, amounts to 8 GtCO2, or about a quarter (25%) of total energy-related CO2 emissions.
ELECTRICITY AND HYDROGEN
Electricity supply Global grid-connected electricity supply increases from 27 PWh/yr in 2020 to 62 PWh/yr by 2050. This signifies a 2.7%/yr annual average growth in electricity generation. At present, the biggest share of the power generation in the world comes from coal-fired power plants (35%), as seen in Figure 2.1. This will shrink to just 4% by 2050 owing to decarbonization, pressure on financing of coal-fired power plants, and the declining costs for renewable electricity generation. The second-largest electricity generator in the world at present is the gas-fired power plant. Its current share of the electricity mix, 24%, will be maintained through to 2030, despite the short-term supply shock caused by Russia’s invasion of Ukraine. From 2030, this share enters a period of steady decline to reach 8% by 2050. Because it is relatively cleaner than coal, we expect gas-fired power plants, primarily run with methane, to have a longer staying power. Such plants have a larger share in regions such as Middle East and North Africa and North East Eurasia, where domestic natural gas resources are plentiful.
RENEWABLE ENERGY Solar panels on earth-orbiting satellites generated some of the first-ever electricity produced by solar photovoltaic (PV) means. The cost of such power was at that time prohibitive for general use of solar PV for supplying electricity to the public. Solar PV costs have since declined spectacularly, the technology’s efficiency has increased, and the scale and forms in which it is implemented have diversified. Solar PV today comes as household installations measured in kW; commercial-industrial scale (MW ] scale) installations on industrial rooftops and car ports, to reduce corporate energy bills; and multi-gigawatt, utility-scale solar farms usually on remote, unproductive land. Utility-scale production dominates and will continue to do so because smaller installations cannot compete on energy cost. Small installations, however, offer flexibility and local security of supply. These advantages will ensure that rooftop and micro-grid sized installations will grow significantly in absolute terms, though their market share will decline (DNV, 2019).
ENERGY SUPPLY AND FOSSIL FUELS
ENERGY SUPPLY AND FOSSIL FUELS 4.1 COAL Fossil fuel presently supplies more than 80% of global energy, and this has been the case for decades. However, this share is set for dramatic change as uptake of renewable energy sources is growing rapidly. The fossil slice of the pie will shrink by around one percentage point per year, and we forecast that by mid-century, its share of global energy supply will be just below the 50% mark. Fossil fuels face several challenges from threats of substitution in several energy system subsectors, to CCS scale up pressure and capital markets rewarding non-emitting energy sources with lower capital costs. Over the coming decades, we will see a gradual phase-down, first of coal, having the highest carbon footprint, and thereafter oil and gas, which compete with each other only to a limited degree. Despite the fact that renewable sources are already competitive in most places with fossil-fired electricity, it will take many years for low- and zero-carbon energy sources to dislodge fossil fuels out of the broader energy system. Figure 4.1 illustrates our forecast for how the composition of the various fossil energy sources, and the non-fossil share, will change in the coming three decades.
ENERGY EFFICIENCY AND FINANCE Primary energy intensity Primary energy intensity is measured as primary energy consumption per unit of GDP; the lower the number, the less energy intensive the economy in question is. Primary energy intensity, population growth, and GDP per capita growth together shape how global energy use develops. When the sum of these three parameters falls below zero, primary energy use will start to decline, and the world will start to use less energy, as illustrated in Figure 5.1. This figure plots energy intensity, population growth, and GDP per capita growth as annual average values within five-year intervals between now and 2050. After 2035, the
reduction in energy intensity is stronger than the combined growth of population and GDP per capita.
POLICY AND THE ENERGY TRANSITION This year’s Outlook is published at a time of multiple uncertainties likely to impact energy developments, including inflation, food insecurity and disrupted supply chains. These were in train by the pandemic and have been intensified by Russia’s invasion of Ukraine. The war has sparked a rush for energy independence, both geographically and in terms of energy sources used. Against these short-term pressures, must be weighed the continuing commitment to, and goal setting under, the Paris Agreement . It is through this prism that the world aspires for a mission-oriented energy transition to solve planetary, economic, and human-development challenges. Our Outlook is set in a context where today’s central difficulty for policymakers is to manage short-term energy supplies without making decisions or investing in energy infrastructure that could undermine long-term societal goals. Energy systems in need of government intervention Policymakers face a long list of urgent challenges — providing energy access, reducing carbon emission and air pollution, adapting to global warming impacts, preserving the environment, securing energy supply, tackling inflation and addressing the swelling food and energy prices. The urgency of these issues means government interventions in energy systems are obliga-tory. Most of these challenges have market failure as a contributory element; for example, the widespread failure to price in externalities associated with fuel use. Others are explained by geopolitical factors. However, they all warrant policy action.
EMISSIONS AND CLIMATE IMPLICATIONS
EMISSIONS AND CLIMATE IMPLICATIONS 7.1 EMISSIONS The energy sector is responsible for more than 70% of annual greenhouse gas (GHG) emissions associated with human activities. The combustion of fossil fuels is the main contributor to emissions from the sector. Most of the emission is carbon dioxide (CO2 ), though methane (CH4 ) is also an important GHG when considering future climate implications. In this chapter, we estimate the global energy-related CO2 emissions until 2050 associated with the ETO forecast. Adding these to the sum of other non-energyrelated CO2 emissions (e.g. industrial processes and land-use) and energy emissions estimates beyond 2050, allows us to derive the cumulative emissions that decides the CO2 concentration, as well as derive the associated global climate response in terms of global average temperature increase. We do not assess climate implications such as flooding, drought, or forest fires beyond the future average warming associated with the cumulative CO2 emissions of our forecast. We describe future CO2 emissions from energy, include a likely development of agriculture and land-use emissions (which contribute significantly to both CO2 emissions and methane emissions); and we then assess climate impli-cations. In addition, we comment on methane emissions from the energy sector and its likely emissions due to changes in the energy system.
PATHWAY TO NET ZERO EMISSIONS (PNZ) This pathway differs markedly from DNV’s ‘best estimate’ forecast of the most likely energy future captured in the rest of this year’s Energy Transition Outlook (ETO). From here on, we use ETO forecast to refer to the most likely future, as a contrast to a PNZ future. Comparing our forecast with a pathway to net zero allows us to place a dimension on the scale of the change needed to achieve an energy transition that secures a 1.5°C future. In its contribution to the IPCC’s Sixth Assessment Report (AR6) on climate change (IPCC, 2022), Working Group III describes 230 pathways that align with a 1.5°C future. Two things common to all these pathways are net zero CO2 emissions around 2050, and the use of some sort of carbon dioxide removal technology. Accounting for greenhouse gases (GHGs) Saying that achieving net zero CO2 emissions in 2050 will limit global warming to below 1.5°C is, of course, a simplification. While CO2 represents 65% of GHG emissions, what happens to other highly potent GHGs such as methane will be important. The IPCC carbon budgets and net zero considerations take account of emissions of these. For instance, methane emissions from fossil fuels or changes in agricultural practices, including fertilizer use or aerosol emissions, have considerable influence on what net zero CO2 will mean in practice. We use the IPCC scenarios in line with ‘very low’ and ‘low’ non-CO2 GHG emissions estimates, corresponding well with the very low CO2 emissions we project; hence the approach is consistent.
REGIONAL TRANSITIONS The energy transition is moving forward in North America more slowly than it could. Oil and gas have always been cheap and abundant in this region and there is a deep-seated reluctance to change its fossil fuel advantage, though this is starting to shift. Renewables have become the most economically competitive power sources, and the recent passage of the Inflation Reduction Act (IRA), described overleaf, makes large investments in renewable energy with the duration of the support lasting into the 2030s. However, getting the IRA through the legislature was tortuous; it is a much slimmed down version of the Build Back Better Bill, which contained more climate legislation, and it is obvious that the transition is not advancing without question in a polarized political climate. Recent steps backwards for the transition include the anti-dumping investigations targeting Chinese solar cells/modules, and limits placed by the Supreme Court on the powers of the Environmental Protection Agency (EPA). It remains to be seen whether the push for energy security and producing more energy domestically, following Russia’s invasion of Ukraine, helps or hinders the transition. In Canada, the transition has been driven by federal policies. Most of its electricity has long been produced renewably through hydropower, and the government has committed to an emissions reduction plan, setting goals for 2030 and 2050. However, there is still political resist-ance to stepping away from fossil fuels, especially in oil-producing provinces Alberta and Saskatchewan, and in areas where energy resources are scarcer, such as in the north of Canada.
Fossil-fuel extraction When it comes to the supply of energy from primary sources, the model focuses on the production of oil, natural gas, and coal. For oil and gas, we use a cost based approach to determine regional production dynamics. On the oil-supply side, we model production capacity as a cost-driven global competition between regions and in three field types: offshore, onshore conventional, and unconventional. Since transportation is typically less than 10% of the final crude-oil cost, we use total breakeven prices of prospective fields to estimate the location and type of future oil production. We model regional gas production slightly differently from that of crude oil. First, we estimate the fraction of gas demand to be supplied from the region’s own sources, based on production and transportation costs. Then, to determine the development of new fields constrained by resource limitations, we set three field types to compete on breakeven prices on a regional scale. Regional refinery capacities and gas liquefaction / LNG regasification capacities are also part of the model.
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