The current shape-shifting global energy crisis has created the conditions for an acceleration away from a fossil fuel-based economy to one powered by renewables but is looking increasingly like a “two-speed” transition, with Europe gearing up deployment of wind and solar at a speed outpacing most other regions in the world, according to DNV’s latest Energy Transition Outlook (ETO).
A combination of a “heightened focus” on energy security and the connected rise in power prices is leading to a deepening divergence in the decarbonisation speed between the EU and the rest of the world, said the authors of the ETO, now in it sixth edition, as Europe “doubles down on renewables and energy efficiency to increase its energy independence” from oil, gas and coal.
For the first time in an ETO, DNV’s forecast sees non-fossil energy “nudg[ing] slightly” above 50% of the world’s energy mix by 2050, driven by respective 20- and 10-fold growth in the build-out of PV and wind plant globally as the two technologies come to account for 83% of electricity production, with 38% and 31% shares of total output.
However, where DNV now expects European gas consumption to fall “dramatically” due to the weaning off Russian supplies during the war in Ukraine – with the bloc forecast to “consume almost half the amount in 2050 [with] gas meeting just 10% of EU demand compared with 25% today”– the ETO also flags the rise of coal consumption seen globally through the pandemic in lower-income countries, “where high energy and food prices are reversing the coal-to-gas switch and putting a dampener on decarbonisation investments”.
“The turbulence in the energy market does not dramatically alter the decarbonisation pathway towards mid-century,” said DNV CEO Remi Eriksen. “The strongest engine of the global energy transition is the rapidly reducing costs of solar and wind energy, which will outweigh the present short-term shocks to the energy system.”
Coal, under DNV’s latest calculus, will still “rapidly exit the energy mix”, while oil is seen plateauing “for some years [before] declining sharply” from 2030 onwards.
Capital spending in the renewables sector over the next decade is expected to double to more than $1.3trn a year, and annual grid expenditure to exceed $1trn. Despite this growth curve, DNV noted investments need to scale “much faster”, tripling for clean energy projects and climbing by 50% for power networks over the next ten years.
The DNV’s Pathway to Net Zero – a regularly-revised roadmap for reaching net zero emissions by 2050 and limiting global warming to 1.5°C above pre-industrial levels, included in the ETO – highlighted that no “new” oil and gas can be produced after 2024 in high income nations and after 2028 in middle- and low-income countries if targets were to be hit.
“Reaching net zero globally in 2050 will require certain regions and sectors to go to net zero much faster. OECD [Organisation for Economic Co-operation and Development] regions must be net zero by 2043 and net negative thereafter; with carbon capture and removal enabling negative emissions,” said the report's authors, adding that China would need to reduce emissions to zero by 2050 rather than the current goal of 2060, if Paris Agreement objectives were to be met.
“Some sectors like electricity production will need to reach net zero before 2050, while other sectors like cement and aviation will still have remaining emissions. In our net zero pathway the maritime sector needs to reduce emissions by 95% by 2050.”
DNV forecasts that the planet is on course to warm by 2.2°C by 2100, unless global CO2 emissions reductions of 8% a year are achieved. Last year, the report's authors spotlighted, emissions “rose steeply, approaching pre-pandemic all-time highs, and 2022 may only show a 1% decline in global emissions”.
“That makes for two ‘lost’ years in the battle against emissions.”
DNV stated that getting the energy transition up to a pace in line with climate action imperatives still needed “much greater policy intervention than we see today.
“The full policy toolbox must be unpacked, including: higher carbon taxes and subsidies, stronger mandates, bans and financial incentives to encourage renewables to replace fossil fuels, and smarter regulation and standards,” said Eriksen.
“With COP27 approaching, it is important that policymakers recognise the huge opportunities inherent in decarbonising the energy mix in light of the mounting costs of climate change impact. The technology exists to achieve net zero emissions by 2050, but for this to happen we must utilise the scope of the policy toolkit.”