The International Energy Agency (IEA), the world’s pre-eminent energy agency, coordinator of the world’s petroleum reserves, and a part of the OECD, yesterday finally released its long-awaited report “Net Zero by 2050 Report – A Roadmap for the Global Energy Sector”
This is an incredibly important report, because it makes very clear that there can be no new fossil fuels if we are to meet our 2050 and 2030 emission reduction targets.
As the Financial Times put it: “Energy groups must stop new oil and gas projects to reach net zero by 2050, IEA says.”
European Investment Bank President Werner Hoyer was well ahead of the IEA when he said in January that “Without an end to the use of unabated fossil fuels, we will not be able to reach the climate targets. To put it mildly, gas is over.”
The modelling behind this report informed the IEA’s 2018 statement along the same lines, cited as a reference by the EU Technical Expert Group in 2020 when it made its recommendations for electricity generation criteria of 100gms CO2e/KWh for the EU Taxonomy.
Three key messages from the report:
- By 2035 all advanced economies need to be net-zero on electricity emissions (implies no-coal and no-natural gas-powered electricity plants). In line with the EU's 55 % net reduction target by 2030, the Union would have to phase out all its coal -fired electricity plants by 2030, and gas-fired p[ower by 2035. Net-zero emissions electricity needs to be achieved globally by 2040.
- Oil & Gas: beyond projects already committed as of 2021, there would be no new oil and gas fields approved for development. This has direct implications for the argument some EU member States are pushing about adding gas-fired power to the EU Taxonomy; and for the “net-zero” plans of some oil majors, that include the development of new fossil fuel fields.
- Methane emissions from fossil fuel supply (largely driven by natural gas supplies) fall by 75% over the next 10 years. That’s right, the next 10 years.
- Green Hydrogen: global hydrogen use expands from less than 90 Mt in 2020 to more than 200 Mt in 2030; the proportion of low carbon hydrogen rises from 10% in 2020 to 70% in 2030. Big innovation opportunities exist in green hydrogen production, infrastructure and use in the shipping, aviation and industrial sectors.
- Investment: Annual investment in energy expands from just over USD 2 trillion globally on average over the last 5 years to almost USD 5 trillion by 2030. The jump in spending would create millions of jobs in clean energy, including energy efficiency, as well as in engineering, manufacturing and construction industries. The upshot: global GDP ends up 4% higher in 2030 than it would be based on current trends!
The ramifications for national climate change plans around the world are profound.
The IEA is telling us that to meet our emission reduction commitments — especially the 2030 targets outlined by major economies at the Biden Climate Summit on 22 April — energy sector changes have to be much faster than what the sector has been thinking.
Most countries still have outdated climate change plans that include gas-fired power generation as a “transition” measure to meet emission reduction targets; this can no longer be so and gas is no longer a legitimate “transition” measure.
For investors, there is now a much higher risk that those climate change action plans will have to now change, with potentially catastrophic impacts on fossil fuel sector returns. Of course they can also expect a massive wave of green investments - and green bonds - as governments rush to meet those challenging targets! Opportunity.
For the rest of us, in government, in business, in civil society, it has never been clearer what has to be done.
