Key findings in the report are as follows:

• ‘‘Critical Materials’’ refers to minerals and metals generally viewed as highly important as inputs for a renewables-based energy transition, including but not limited to Cobalt, Copper, Graphite, Iridium, Lithium, Manganese, Nickel, Platinum, and selected rare earth elements.

• Selected Critical Materials Energy Related Technology Applications

• The Energy Transition will be a main driver of demand for several critical materials. IREA’s 1.5 °C scenario includes 33,000 GW of Renewable power and electrification of 90% of Road transport in 2050.

• Assessment of the criticality of materials is dynamic and continuously changing owing to Economic, Geopolitical, and Technological factors. Presently, there is no universally accepted definition of critical materials.

• Critical Material supply disruptions have minimal impact on Energy Security, but outsized impacts on the Energy Transition. For, already built renewable infrastructure could operate for decades. On the other hand, New renewable infrastructures could not be built if there is a supply disruption in critical materials which ultimately undermines the energy transition.

• Dependency risks and supply dynamics of critical materials fundamentally differ from those of fossil fuels. Despite there is no scarcity of reserves for Energy Transition materials, capabilities for mining and refining them are very limited now due to under-investment in upstream activities.

• The Mining and processing landscape of critical materials is geographically concentrated, with a select group of countries playing dominant role. For instance, 100% of natural graphite, dysprosium supply comes from China. 70% of Cobalt comes from Congo, 47% of Lithium comes from Australia.

• 15 billion tons of fossil fuels were extracted in 2021 alone. Oil and Gas exports represented a value of USD 2 trillion in 2021. On the other hand, only 10 million tons of critical materials were produced for low-carbon technologies in 2022.

• Export restrictions on raw materials are a growing concern in international trade. Incidences of such restrictions have grown more than fivefold over the past decade (Figure 2.11) (OECD, 2023). Export restrictions usually take multiple forms, including export quotas, export taxes, obligatory minimum export prices, or licensing

• A growing number of countries and corporations are showing interest in deep-sea mining for critical materials, that is, extracting mineral resources from the ocean floor. To date, 22 state and private contractors hold 31 mining exploration contracts to search for polymetallic nodules, polymetallic sulphides and cobalt-rich ferromanganese crusts which are extremely rich in valuable metals with high-grade ore, such as cobalt, copper and manganese.

• Critical material mining projects can exacerbate water stress. About half of the global copper and lithium production, for example, is concentrated in high-water-stress areas (Gielen et al., 2022b; IRENA, forthcoming). This includes the “lithium triangle”, a lithium-rich (65% of the world’s lithium reserves) region in Andes encompassed by the borders of Argentina, Bolivia and Chile.

• Many battery minerals are mined in developing countries in Africa, Asia and Latin America, the actual value-addition work, such as smelting, refining, cell assembly and ultimately EV production often takes place elsewhere. As Figure 3.8 illustrates, the mining of nickel, lithium and cobalt has only a 0.6% share in the total EV value chain (1.1% if metal smelting and refining are included).

• The concentration of critical material mining and processing in a handful of countries has raised concerns about the reliability of global supply chains, prompting governments and stakeholders to develop strategies to mitigate their vulnerability. These strategies aim to secure access to critical minerals and materials, promote domestic production, and reduce dependence on any single supplier or region.

Policy Considerations and The Way Forward

• Comprehensive, economy-wide evaluations of critical material demand are essential to identify potential risks and help avoid competition between sectors. Countries should carefully assess the effects of surging demand for critical materials across all economic sectors, in line with their net-zero strategies. Currently, most demand for these materials comes from sectors unrelated to the energy transition, including electronics, aviation, defense, healthcare, and steel and aluminum production.

• No country alone can fulfil its demand for all critical materials, so collaborative strategies that benefit all involved need to be developed and implemented. Given the extensive lead times for establishing new mines and processing plants, concentrated supply chains are expected to persist in the near future. Countries should aim to develop dual strategies to ensure co-operation to keep markets functioning while also working to diversify supply chains in the long term.

• Comprehensive assessments of critical materials should be conducted for each mineral to fully grasp the dependencies, risks and innovations that may affect supply and demand. Despite the long list of identified critical materials, not all are equally important for the energy transition, nor are their criticality assessments consistent. For instance, innovation has resulted in an increased use of substitute materials for those considered critical, such as neodymium, copper, and lithium.

• Geopolitical risks can be mitigated through enhanced investment in research and development, which would expedite the creation of alternative solutions, boost efficiency, and expand recycling and repurposing options. Several strategies can be employed to prevent major supply challenges leading up to 2050, with a focus on this decade. Key among these are product design strategies to minimize the use of critical materials, and the recycling and reuse of products to reclaim scarce materials.

• Greater data transparency and oversight of certain critical materials are required to mitigate uncertainty in supply and demand projections. The starting point should be the collection of more detailed information and data on reserves, production, investment, and pricing, among other factors, to track current supply and increase market transparency. The adoption of international quality standards and certification for key products involving critical materials could also facilitate market formation.

• International co-operation is crucial in creating transparent markets with coherent standards and norms, grounded in human rights, environmental stewardship and community engagement. The energy-driven mineral boom offers a chance to rewrite the legacy of the extractive industry. Known issues surrounding mining practices need a proactive response from both nations and corporations. Importer and exporter countries must collaborate to develop supply chains that uphold clear standards regarding human rights, environmental concerns and community engagement. These standards are essential to human security and their absence is one of the root causes of geopolitical instability. In this regard, mining corporations should be held accountable for the responsible management of extraction processes.

Full Report: “Geopolitics Of The Energy Transition-Critical Materials”, International Renewable Energy Agency

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Renewables 2023

 Analysis and forecasts to 2028

Key Findings:

• Global annual renewable capacity additions increased by almost 50% to nearly 510 gigawatts (GW) in 2023, the fastest growth rate in the past two decades.

This is the 22nd year in a row that renewable capacity additions set a new record. While the increases in renewable capacity in Europe, the United States and Brazil hit all-time highs, China’s acceleration was extraordinary. In 2023, China commissioned as much solar PV as the entire world did in 2022, while its wind additions also grew by 66% year-on-year. Globally, solar PV alone accounted for three-quarters of renewable capacity additions worldwide.

• Achieving the COP28 target of tripling global renewable capacity by 2030 hinges on policy implementation or lack thereof.

These 4 main challenges must be addressed on the policy level in order to achieve the COP28 target and they are: 1) policy uncertainties and delayed policy responses to the new macroeconomic environment; 2) insufficient investment in grid infrastructure preventing faster expansion of renewables; 3) cumbersome administrative barriers and permitting procedures and social acceptance issues; 4) insufficient financing in emerging and developing economies.

• G20 countries account for almost 90% of global renewable power capacity today.

In the accelerated case, which assumes enhanced implementation of existing policies and targets, the G20 could triple their collective installed capacity by 2030. As such, they have the potential to contribute significantly to tripling renewables globally. However, to achieve the global goal, the rate of new installations needs to accelerate in other countries, too, including many emerging and developing economies outside the G20, some of which do not have renewable targets and/or supportive policies today.

• The global power mix will be transformed by 2028.

The world is on course to add more renewable capacity in the next five years than has been installed since the first commercial renewable energy power plant was built more than 100 years ago. In the main case forecast in this report, almost 3 700 GW of new renewable capacity comes online over the 2023-2028 period, driven by supportive policies in more than 130 countries. Solar PV and wind will account for 95% of global renewable expansion, benefiting from lower generation costs than both fossil and non-fossil fuel alternatives.

• Over the coming five years, several renewable energy milestones are expected to be achieved:

• In 2024, wind and solar PV together generate more electricity than hydropower.

• In 2025, renewables surpass coal to become the largest source of electricity generation.

• Wind and solar PV each surpass nuclear electricity generation in 2025 and 2026 respectively.

• In 2028, renewable energy sources account for over 42% of global electricity generation, with the share of wind and solar PV doubling to 25%.

• China is the world’s renewables powerhouse.

China accounts for almost 60% of new renewable capacity expected to become operational globally by 2028. Despite the phasing out of national subsidies in 2020 and 2021, deployment of onshore wind and solar PV in China is accelerating, driven by the technologies’ economic attractiveness as well as supportive policy environments providing long-term contracts. Our forecast shows that China is expected to reach its national 2030 target for wind and solar PV installations this year, six years ahead of schedule.

China’s role is critical in reaching the global goal of tripling renewables because the country is expected to install more than half of the new capacity required globally by 2030. At the end of the forecast period, almost half of China’s electricity generation will come from renewable energy sources.

• The US, the EU, India and Brazil remain bright spots for onshore wind and solar PV growth.

Solar PV and onshore wind additions through 2028 is expected to more than double in the United States, the European Union, India and Brazil compared with the last five years. Supportive policy environments and the improving economic attractiveness of solar PV and onshore wind are the primary drivers behind this acceleration. In the European Union and Brazil, growth in rooftop solar PV is expected to outpace large-scale plants as residential and commercial consumers seek to reduce their electricity bills amid higher prices.

• Solar PV prices plummet amid growing supply gluts.

In 2023, spot prices for solar PV modules declined by almost 50% year-on-year, with manufacturing capacity reaching three times 2021 levels. The current manufacturing capacity under construction indicates that the global supply of solar PV will reach 1 100 GW at the end of 2024, with potential output expected to be three times the current forecast for demand. Despite unprecedented PV manufacturing expansion in the United States and India driven by policy support, China is expected to maintain its 80-95% share of global supply chains (depending on the manufacturing segment).

• Onshore wind and solar PV are cheaper than both new and existing fossil fuel plants.

In 2023, an estimated 96% of newly installed, utility-scale solar PV and onshore wind capacity had lower generation costs than new coal and natural gas plants. In addition, three-quarters of new wind and solar PV plants offered cheaper power than existing fossil fuel facilities. Wind and solar PV systems will become more cost-competitive during the forecast period.

• The new macroeconomic environment presents further challenges that policy makers need to address.

In 2023, new renewable energy capacity financed in advanced economies was exposed to higher base interest rates than in China and the global average for the first time. Since 2022, central bank base interest rates have increased from below 1% to almost 5%. In emerging and developing economies, renewables developers have been exposed to higher interest rates since 2021, resulting in higher costs hampering faster expansion of renewables.

• The renewable energy industry, particularly wind, is grappling with macroeconomic challenges affecting its financial health – despite a history of financial resilience.

The wind industry has experienced a significant decline in market value as European and North American wind turbine manufacturers have seen negative net margins for seven consecutive quarters due to volatile demand, limited raw material access, economic challenges, and rising interest rates.

• The forecast for wind capacity additions is less optimistic outside China, especially for offshore.

Offshore wind has been hit hardest by the new macroeconomic environment, with its expansion through 2028 revised down by 15% outside China. The challenges facing the industry particularly affect offshore wind, with investment costs today more than 20% higher than only a few years ago. In 2023, developers have cancelled or postponed 15 GW of offshore wind projects in the United States and the United Kingdom. For some developers, pricing for previously awarded capacity does not reflect the increased costs facing project development today, which reduces project bankability.

• Faster deployment of variable renewables increases integration and infrastructure challenges.

The share of solar PV and wind in global electricity generation is forecast to double to 25% in 2028 in our main case. This rapid expansion in the next five years will have implications for power systems worldwide. In the European Union, annual variable renewables penetration in 2028 is expected to reach more than 50% in seven countries, with Denmark having around 90% of wind and solar PV in its electricity system by that time. Although EU interconnections help integrate solar PV and wind generation, grid bottlenecks will pose significant challenges and lead to increased curtailment in many countries as grid expansion cannot keep pace with accelerated installation of variable renewables.

• Current hydrogen plans and implementation don’t match.

Renewable power capacity dedicated to hydrogen-based fuel production is forecast to grow by 45 GW between 2023 and 2028, representing only an estimated 7% of announced project capacity for the period. China, Saudi Arabia and the United States account for more than 75% of renewable capacity for hydrogen production by 2028. Despite announcements of new projects and pipelines, the progress in planned projects has been slow.

• Biofuel deployment is accelerating and diversifying more into renewable diesel and biojet.

Fuel Emerging economies, led by Brazil, dominate global biofuel expansion, which is set to grow 30% faster than over the last five years. Supported by robust biofuel policies, increasing transport fuel demand and abundant feedstock potential, emerging economies are forecast to drive 70% of global biofuel demand growth over the forecast period.

• Electric vehicles (EVs) and biofuels are proving to be a powerful complementary combination for reducing oil demand.

Globally, biofuels and renewable electricity used in EVs are forecast to offset 4 million barrels of oil-equivalent per day by 2028, which is more than 7% of forecast oil demand for transport. Biofuels remain the dominant pathway for avoiding oil demand in the diesel and jet fuel segments. EVs outpace biofuels in the gasoline segment, especially in the United States, Europe and China.

• Renewable heat accelerates amid high energy prices and policy momentum – but not enough to curb emissions.

Modern renewable heat consumption expands by 40% globally during the outlook period, rising from 13% to 17% of total heat consumption. These developments come predominantly from the growing reliance on electricity for process heat – notably with the adoption of heat pumps in non-energy-intensive industries – and the deployment of electric heat pumps and boilers in buildings, increasingly powered by renewable electricity.

China, the European Union and the United States lead these trends, owing to supportive policy environments; updated targets in the European Union and China; strong financial incentives in many markets; the adoption of renewable heat obligations; and fossil fuel bans in the buildings sector.

• However, the trends to 2028 are still largely insufficient to tackle the use of fossil fuels for heat and put the world on track to meet Paris Agreement goals.

Without stronger policy action, the global heat sector alone between 2023 and 2028 could consume more than one-fifth of the remaining carbon budget for a pathway aligned with limiting global warming to 1.5°C. Global renewable heat consumption would have to rise 2.2 times as quickly and be combined with widescale demand-side measures and much larger energy and material efficiency improvements to align with the NZE Scenario.

Full Report: Renewables 2023 – Analysis – IEA

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SUMMARY

Key findings in the report are as follows:

• The Energy Transition is off-track. Covid-19 and the ripple effects of the Ukraine crisis have further compounded the challenges facing the transition.

• Limiting global warming to 1.5°C requires cutting carbon dioxide (CO2) emissions by 37 gigatons from 2022 levels and achieving Net-Zero emissions in the energy sector by 2050. 1.5 °C Pathway requires a wholescale transformation of the way societies consume and produce energy.

• Annual deployment of at least 1000 GW of renewable power is needed to stay on 1.5 °C In 2022, around 300 GW of renewable power were added globally, accounting for 83% of new capacity compared to a 17% share combined for fossil fuel and nuclear additions.

• Policies and Investments are not consistently moving in the right direction. In 2022, we saw the highest level of fossil fuel subsidies ever. While global investment across all energy transition technologies reached a record high of USD 1.3 trillion in 2022, Fossil fuel capital investments were almost twice those of renewable energy investment.

• The share of renewable energy in the global energy mix would need to increase from 16% in 2020 to 77% by 2050. 12 – fold increase in renewable electricity capacity by 2050.

• Electricity would become the main energy carrier, accounting for over 50% of total final energy consumption by 2050. Renewable energy deployment, improvements in energy efficiency, electrification of end-use sectors would contribute to this shift. In addition, modern biomass and hydrogen would both play more significant roles meeting 16% and 14% of total final energy consumption by 2050, respectively.

• Despite renewable electricity costs continuing their historic downward trend, an enduring investment gap still exists. A cumulative USD 150 trillion is required to realize the 1.5 °C target by 2050, averaging over USD 5 trillion in annual terms which is almost four times the record high investment made in 2022. In 2021, 163Gw of renewable power generation produced electricity that cost less than the electricity generated from the cheapest source of new fossil fuel-based capacity. These 163GW accounted for 73% of the total new renewable power generation capacity added globally.

• Renewable energy investment remains concentrated in a limited number of countries and focused on only a few technologies. Africa accounted for only 1% of additional capacity in 2022. While many transition technology choices are available, most investments were in Solar PV and wind power (95% of total investment). Greater volumes of funding need to flow towards other energy transition technologies such as: biofuels, hydropower, and geothermal energy.

• The Global weighted average Levelized Cost of Electricity (LCOE) of newly commissioned utility-scale Solar PV projects fell by 88% between 2010 and 2021. LCOE of CSP (concentrated solar power) fell by 68%, and onshore, offshore wind by 68% and 60% respectively.

Source: IRENA-World Energy Transition Outlook 2023.

• As an energy transition fuel, hydrogen and its derivatives (ammonia and methanol) will play a unique role in the energy transition, especially for industrial processes and certain transport modes. However, green hydrogen is still at its infancy. Policy support and investments are needed to scale it to a mainstream energy source. By 2050, 94% of hydrogen would be renewable based in the 1.5 °C Hydrogen would play a key role in the decarbonization of end-users and flexibility of the power system.

• Bioenergy plays a key role in the energy transition, under IRENA’s 1.5 °C scenario, bioenergy’s share in the primary energy supply would grow to 22% in 2050. By the same year, the share of modern uses of bioenergy in TFEC would grow to 15% globally. The industry sector would account for the majority of this consumption (52%), followed by transport (23%), buildings (18%), and other categories.

Source: IRENA–World Energy Transition Outlook 2023

• Hard-to-decarbonize industry sectors require a range of solutions such as: options based on green hydrogen, bioenergy, direct electrification, and integration of CCS and BECCS to tackle residual emissions, as well as energy efficiency and circular economy principles. Scale-up of these solutions require policy tools which include industrial decarbonization roadmaps, green public procurement, support for R&D, international collaboration in technology transfer and investment.

• With only 0.04 Gt of carbon captured in 2020. From Carbon Capture and Storage to Bioenergy with Carbon Capture and Storage (BECCS), and other methods should be scaled up to 7Gt by 2050.

• In the buildings sector, efficiency is the main enabler of the energy transition. Efficient appliances are to be increasingly adopted and cooking would need to rapidly adopt electricity-powered efficient stoves and sustainable biomass. Some widely adopted policies in this sector include building codes, bans on the use of fossil fuels for heating, financial and fiscal incentives for renovation, efficiency, and renewables. Targets for net-zero buildings, minimum energy performance standards for appliances and mandates for solar hot water for public buildings.

• Heat pumps will play a crucial role in decarbonizing space and water heating and making space coding more efficient.

Source: IRENA–World Energy Transition Outlook 2023

• In total, renewables share would grow to 84% of the final consumption in road transport sector by 2050. Policies for road transport would need to support the scale-up of electric vehicles and charging infrastructure. Policy tools in this regard could also include the phasing out of internal combustion engine vehicles, targets around zero-emission vehicles, zero-emission zones, and preferential measures at the city level.

Full Report: “World Energy Transition Outlook 2023 1.5 °C Pathway”, International Renewable Energy Agency

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As Figure 1 below shows, in the fourth quarter of 2020 gas consumption in the EU was similar to that in Q4 2019, with the exception of December, when it was slightly higher, close to the upper range of the last five years. In 2020 gas consumption in the EU amounted to 394 bcm, down by 12 bcm (3%) compared to 2019.

Figure 1- EU Gas Cunsumption

Due to the combined impact of year-on-year decreasing import volumes and increasing average import prices, in the fourth quarter of 2020 the estimated gas import bill amounted to €13.5 billion, (in comparison to €14.4 billion in Q4 2019, falling by 6% year-onyear).

Wholesale gas prices in Europe, following the recovery started in the previous quarter, were up by 5% in Q4 2020 year-on-year. The quarterly gas import bill however rose significantly in Q4 2020 compared to the previous quarter (€7.1 billion). In 2020, the total gas import bill was €36.5 billion, down from €59.4 billion in 2019.

Figure 2- Estimated Quarterly Extra-EU Gas Import Bill, in Billions Of Euros

Key findings in the report are as follows:

• In spite of new lockdown measures in many EU countries and other parts of the world, in Q4 2020 energy markets, including natural gas and oil markets, were generally in positive mood and followed an upward price trajectory over the quarter. As of early November, this was reinforced by news on the availability of anti-Covid-19 vaccines, which raised expectations of the end of the pandemic crisis and recovery, implying rising demand for energy products. GDP in the EU was still down by 4.6% in Q4 2020 in year-on-year comparison in the EU.
• In the fourth quarter of 2020 EU gas consumption went up slightly, by 1.3% (1.5 bcm) compared to Q4 2019, after the 10% fall in the second quarter and stagnation in the Q3 2020. Consumption of gas was limited by relatively mild weather in Q4 2020, however, the widespread practice of teleworking might have contributed to the overall increase, in the residential sector. Gas consumption in Q4 2020 was 119.2 bcm, up from 117.7 bcm in Q4 2019. In 2020, consumption of natural gas amounted to 394 bcm, down from 406 bcm (by 3%, and 12 bcm) in 2019.
• Indigenous gas production in the EU, amounting to 14 bcm in Q4 2020, was down by 15% (2.4 bcm) compared to Q4 2019. In Q4 2020 the Netherlands produced 6.2 bcm of gas, down by 17% year-on-year. The Dutch government announced that the production cap for the Groningen field is going to be halved compared to the current gas year as of October 2021. Romania produced 2.4 bcm of gas, followed by Poland (1.5 bcm) and Germany (1.1 bcm). In 2020, gas production in the EU amounted to 54 bcm, down from 70 bcm in 2019. The United Kingdom produced slightly less than 40 bcm natural gas, whereas production in Norway amounted to 112 bcm.
• EU net gas imports fell by 9% year-on-year (8.8 bcm) in Q4 2020. Russian pipeline supplies covered 49% of extra-EU net gas imports. Norwegian pipeline gas was the second most important source (22%), LNG imports together covered 18% of the total EU imports followed by pipeline imports from Algeria (10%) and Libya (1%). Net gas imports amounted to 84 bcm in Q4 2020, while in 2020 it reached 326 bcm, down from 358 bcm in 2019. If pipeline and LNG supplies are also taken into account, in 2020 Russian gas ensured 48% of the total extra-EU imports, followed by Norway (24%), LNG from non-Russian, Norwegian and Algerian sources (18%), Algeria (9%) and Libya (1%). In 2020, the total gas import bill was €36.5 billion, down from €59.4 billion in 2019.
• Nord Stream remained the most important supply route of Russian pipeline gas to the EU in Q4 2020, having a share of 37% in the Russian pipeline imports (15 bcm transit), the Ukrainian transit route re-emerged to the second place (34%, 14 bcm), and the Belarus transit came to the third place, with 25% (10 bcm), ahead of Turk Stream (4%, around 2 bcm). In 2020 52 bcm gas was transited through Nord Stream, around 38 bcm gas was transited through Ukraine with EU destination, 33 bcm though the Yamal pipeline (Belarus) and only 5 bcm through the Turk Stream. Decrease in EU Russian gas imports mainly impacted the Ukrainian transit route.

Figure 3- EU Imports of Natural Gas from Russia by Supply Route, 2017-2020

• The new Trans Adriatic Pipeline, being part of the Southern Gas Corridor and providing access to Azeri gas sources, began operations in November 2020 and the first gas shipments were delivered to Italy on 30 December 2020. The pipeline is to deliver 10 bcm gas per year, principally to Italy, Greece and Bulgaria. The importance of Turk Stream is to increase in Russian gas supply to the Balkans, as the new Bulgaria-Serbia gas interconnector became operational since January 2021.
• EU LNG imports fell by 27% year-on-year in Q4 2020, owing to increasing Asian wholesale gas market price premiums to Europe, which resulted in cargo redirections towards the Asian markets. Russia, the US and Qatar had almost equal shares in the extra-EU LNG supply (17 bcm). In 2020, the total EU LNG imports amounted to 84 bcm, down from 88 bcm in 2019. The biggest EU LNG consumers were: Spain (21 bcm), France (20 bcm), Italy (12 bcm), Netherlands (8 bcm) and Belgium (7 bcm). The United States supplied 19 bcm of LNG to the EU, followed by Qatar (18 bcm) and Russia (17 bcm). In global comparison the EU was the third biggest LNG market after Japan (102 bcm) and China (91 bcm) in 2020.

Figure 4- LNG Imports in the EU Member States From Different Sources in the Fourth Quarter of 2020

• Gas traded volumes on the European hubs was up by 21% (plus 3 439 TWh) in Q4 2020 year-on-year, after the temporary decrease in the previous quarter. In spite of falling LNG imports, storage withdrawals intensified and trading volumes were mainly driven by near-curve contracts on the European hub optimising seasonal storages and hedging for international players. The Dutch TTF remained the most liquid hub in Europe, pooling around three quarters of all European gas trade.
• Gas storage levels in the EU fell to 74% by the end of December 2020, which was 21% lower than at the beginning of Q4 2020, as higher spot market prices increased the competitiveness of consuming gas from storages, injected at lower costs.
• Spot prices on the European gas hubs in Q4 2020 kept on increasing and were 6-21% higher in year-on-year comparison. By the end of December 2020 the TTF spot price rose to 19 €/MWh, the highest since the beginning of 2019. As during the course of Q4 2020 the price premium of the Asian wholesale gas markets widened to Europe, reaching the highest since the end of 2018, LNG cargoes were redirected towards the more lucrative Asian markets, reducing gas supply in Europe and propelling the EU wholesale market prices.
• Retail gas prices for household customers showed a decrease of 8% year-on-year in Q4 2020, while industrial customers faced a decrease of 2% in the same period. With the exception of seven countries, gas prices for households in European capital cities were lower in February 2021 compared to a year earlier.
• Hydrogen costs base assessments show that in the Netherlands production costs of hydrogen with alkaline electrolyser technology amounted to 118 €/MWh in December 2020, whereas with polymer electrolate fuel cells the cost was assessed to 99 €/MWh, and with steam methane forming at around 48 €/MWh, if capital costs are included as well.

Source: “Quarterly Report Energy on European Gas Markets”, European Commission

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SUMMARY

Global energy demand in 2020 fell by 4%, the largest decline since World War II and the largest ever absolute decline. The latest statistical data for energy demand in the first quarter of 2021 highlights the continued impacts of the pandemic on global energy use. Building on Q1 data, projections for 2021 indicate that as Covid restrictions are lifted and economies recover, energy demand is expected to rebound by 4.6%, pushing global energy use in 2021 0.5% above pre-Covid-19 levels. The outlook for 2021 is, however, subject to major uncertainty. It depends on vaccine rollouts, the extent to which the Covid-19-induced lockdowns scarred economies, and the size and effectiveness of stimulus packages. Current economic outlooks assume global GDP will surpass 2019 levels, lifting demand for goods, services and energy. However, transport activity and, particularly, international travel remain severely supressed. If transport demand returns to pre-Covid levels across 2021, global energy demand will rise even higher, to almost 2% above 2019 levels, an increase broadly in line with the rebound in global economic activity.

Increases in electricity generation from all renewable sources should push the share of renewables in the electricity generation mix to an all-time high of 30% in 2021. Combined with nuclear, low-carbon sources of generation well and truly exceed output from the world’s coal plants in 2021.

Key findings in the report are as follows:

• The Covid-19 pandemic continues to impact global energy demand. Third waves of the pandemic are prolonging restrictions on movement and continue to subdue global energy demand. But stimulus packages and vaccine rollouts provide a beacon of hope. Global economic output is expected to rebound by 6% in 2021, pushing the global GDP more than 2% higher than 2019 levels
• Emerging markets are driving energy demand back above 2019 levels. Global energy demand is set to increase by 4.6% in 2021, more than offsetting the 4% contraction in 2020 and pushing demand 0.5% above 2019 levels. Almost 70% of the projected increase in global energy demand is in emerging markets and developing economies, where demand is set to rise to 3.4% above 2019 levels. Energy use in advanced economies is on course to be 3% below pre-Covid levels.
• Global energy-related CO2 emissions are heading for their second-largest annual increase ever. Demand for all fossil fuels is set to grow significantly in 2021. Coal demand alone is projected to increase by 60% more than all renewables combined, underpinning a rise in emissions of almost 5%, or 1 500 Mt. This expected increase would reverse 80% of the drop in 2020, with emissions ending up just 1.2% (or 400 Mt) below 2019 emissions levels.
• Sluggish demand for transport oil is mitigating the rebound in emissions. Despite an expected annual increase of 6.2% in 2021, global oil demand is set to remain around 3% below 2019 levels. Oil use for road transport is not projected to reach pre-Covid levels until the end of 2021. Oil use for aviation is projected to remain 20% below 2019 levels even in December 2021, with annual demand more than 30% lower than in 2019. A full return to pre-crisis oil demand levels would have pushed up CO2 emissions a further 1.5%, putting them well above 2019 levels.
• Global coal demand in 2021 is set to exceed 2019 levels and approach its 2014 peak. Coal demand is on course to rise 4.5% in 2021, with more than 80% of the growth concentrated in Asia. China alone is projected to account for over 50% of global growth. Coal demand in the United States and the European Union is also rebounding, but is still set to remain well below pre-crisis levels. The power sector accounted for only 50% of the drop in coal-related emissions in 2020. But the rapid increase in coal-fired generation in Asia means the power sector is expected to account for 80% of the rebound in 2021.
• Among fossil fuels, natural gas is on course for the biggest rise relative to 2019 levels. Natural gas demand is set to grow by 3.2% in 2021, propelled by increasing demand in Asia, the Middle East and the Russian Federation (“Russia”). This is expected to put global demand more than 1% above 2019 levels. In the United States – the world’s largest natural gas market – the annual increase in demand is set to amount to less than 20% of the 20 bcm decline in 2020, squeezed by the continued growth of renewables and rising natural gas prices. Nearly three-quarters of the global demand growth in 2021 is from the industry and buildings sectors, while electricity generation from natural gas remains below 2019 levels.
• Electricity demand is heading for its fastest growth in more than 10 years. Electricity demand is due to increase by 4.5% in 2021, or over 1 000 TWh. This is almost five times greater than the decline in 2020, cementing electricity’s share in final energy demand above 20%. Almost 80% of the projected increase in demand in 2021 is in emerging market and developing economies, with the People’s Republic China (“China”) alone accounting for half of global growth. Demand in advanced economies remains below 2019 levels.
• Renewables remain the success story of the Covid-19 era. Demand for renewables grew by 3% in 2020 and is set to increase across all key sectors – power, heating, industry and transport – in 2021. The power sector leads the way, with its demand for renewables on course to expand by more than 8%, to reach 8 300 TWh, the largest year-on-year growth on record in absolute terms.
• Renewables are set to provide more than half of the increase in global electricity supply in 2021. Solar PV and wind are expected to contribute twothirds of renewables’ growth. The share of renewables in electricity generation is projected to increase to almost 30% in 2021, their highest share since the beginning of the Industrial Revolution and up from less than 27% in 2019. Wind is on track to record the largest increase in renewable generation, growing by 275 TWh, or around 17%, from 2020. Solar PV electricity generation is expected to rise by 145 TWh, or almost 18%, and to approach 1 000 TWh in 2021.
• China alone is likely to account for almost half the global increase in renewable electricity generation. It is followed by the United States, the European Union and India. China is expected to generate over 900 TWh from solar PV and wind in 2021, the European Union around 580 TWh, and the United States 550 TWh. Together, they represent almost three-quarters of global solar PV and wind output.

Source: “Global Energy Review 2021”, IEA

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SUMMARY

Sharply reducing carbon emissions is imperative to prevent the worst effects of climate change. Fifteen years ago, many business-as-usual projections anticipated that annual carbon dioxide (CO₂) emissions from power supply in the United States would reach 3,000 million metric tons (MMT) in 2020. In fact, direct power-sector CO₂ emissions in 2020 were 1,450 MMT—roughly 50% below the earlier projections. By this metric, in only 15 years the country’s power sector has gone halfway to zero emissions. Other metrics also evolved differently than projected: total consumer electricity costs (i.e., bills) were 18% lower; costs to human health and the climate were 92% and 52% lower, respectively; and the number of jobs in electricity generation was 29% higher. Economic, technical, and policy factors contributed to this success, including sectoral changes, energy efficiency, wind and solar, continued operations of the nuclear fleet, and coal-to-gas fuel switching.

This historical record demonstrates the ability of technological and policy changes to set the power sector on a dramatically different emissions trajectory. Past success, however, does not trivialize the challenges that remain for further decarbonization in the power sector and beyond. Nor does it offer a specific roadmap for how best to achieve additional power-sector emissions reductions Numerous challenges confront a zero-emissions pathway, and future strategies will likely differ from those of the past. Many recent studies have assessed how to make further progress in decarbonizing the power sector on the pathway to decarbonizing the economy as a whole, including a report from the NationalAcademies (2021a). As the country maps out a plan for further decarbonization, experience from the past 15 years offers two central lessons. First, policy and technology advancement are imperative to achieving significant emissions reductions. Second, our ability to predict the future is limited, and so it will be crucial to adapt as we gain policy experience and as technologies advance in unexpected ways.

Key findings on emissions reductions to date

Lower Emissions: The U.S. power sector, in 2020, looks radically different from projections made 15 years earlier. Compared to a range of past business-as-usual projections from the government, private sector, and research communities, in just 15 years the country’s power sector has marched halfway to zero emissions. For example, the U.S. Energy Information Administration’s (EIA’s) 2005 Annual Energy Outlook (AEO) projected that CO₂ emissions from power supply would be 3,008 MMT in 2020. In fact, direct power-sector CO₂ emissions in 2020 were 1,450 MMT, 52% lower than projected. The results for 2020 reflect the impact of COVID-19. Electricity demand in 2020 was 4% lower than in 2019. The 52% reduction in emissions relative to EIA’s earlier business-as-usual projection is reduced to 46% if 2019 data are used. Comparing 2020 power-sector CO₂ emissions with 2005 emissions shows a more modest though still sizable 40% reduction. Using pre-COVID data from 2019, the reduction is 33%—on this latter metric, the United

States is one third of the way towards zero emissions.

Limited National Consumer Electricity-Cost Impacts: Retail electricity prices in 2020 (10.7 cents per kilowatt-hour [¢/kWh]) were similar to those in 2005 (10.6 ¢/kWh, in real 2020$), but higher than projected for 2020 (9.9 ¢/kWh). Total sales in 2020 were lower than anticipated. Consequently, total customer electricity bills (i.e., costs) in 2005 and 2020 were similar, and 2020 bills—at $391 billion—were 18% lower than the projected $477 billion. However, they indicate that national average electricity expenditures are roughly the same today as in 2005, and they are well below previously projected values.

Lower Health and Climate Burdens: The impacts of electricity supply go well beyond  consumer  electricity bills to include climate  damages caused by carbon emissions and  human health damages from other  pollutants. Climate damages from power-sector carbon emissions in 2020, estimated at $110 billion, were less than half the $229 billion that would have been incurred under the EIA projection. In total, the  calculated social cost of power supply—considering electricity bills, climate damages, and health impacts—in 2020 of $535 billion was 44% lower than in 2005 ($948 billion) and 52% lower than  projected for 2020 ($1,124 billion).

National Power-Supply Job Gains: Electricity-supply related employment in 2019 (the most recent year for which comprehensive data are available) was 29% higher than might have been the case under the business-as-usual projection for 2020, because the renewable energy sector is job-intensive, requiring more jobs per unit output than natural gas and coal. As a result, though jobs in the coal sector are considerably lower than might have been the case, natural gas and especially renewable energy jobs boost the overall total to 920,000. Jobs in the nuclear sector largely held steady.

Slower Progress in Other Energy Sectors: Decarbonization in other energy sectors has been slower than in the power sector, which accounts for 53% of total energy-sector emissions reductions. Nonetheless, trends since 2005 and comparisons to projections for 2020 show broad progress. Total energy-related carbon emissions in 2020 were 39% lower than projected under the EIA’s business-as-usual scenario.

Future pathways and remaining challenges

It is significant that the nation has cut power-sector carbon emissions over the last 15 years. However, if the United States is to progress on a deep-decarbonization pathway, it must absorb the likely near-term rebound in emissions post-COVID, and then once again beat business-as-usual emissions projections. Many challenges confront a zero-emissions pathway, and the strategies of the future will differ from those of the past. Recent literature suggests the following future pathways and challenges:

Deep Additional Reductions at Relatively Low Incremental Cost: Recent literature suggests that solar, wind, and energy storage—along with existing low-carbon resources and energy efficiency—are likely to play important roles in near-term power-sector decarbonization. Given advancements in wind, solar, and battery technologies, decarbonizing the power sector now appears to be more cost-effective than expected just a few years ago. Moreover, more than half of the additional wind and solar capacity needed to approach a zero-carbon power-sector target is already in the development pipeline: about 660 gigawatts (GW) of wind and solar are seeking transmission access (along with about 200 GW of storage).

Challenges Ahead in Scaling Wind, Solar, and Storage: Dramatically expanding wind, solar, and storage to become major contributors to power supply is not trivial. It would require extensive efforts to ensure electricity delivery and power-system reliability and resilience, significant new transmission infrastructure, enhanced and integrated planning and operations, revised siting processes, focused attention on workforce and supply chain issues, and heightened responsiveness to impacted communities. Aggressive pursuit of energy efficiency and demand response—in part through grid-interactive efficient buildings—can address some of these challenges, but it may create new challenges in system coordination given the increasingly complicated operating environment.

Striving for Zero Emissions: For power systems relying on increasing volumes of wind, solar, and batteries, the incremental cost of carbon reduction begins to rise more steeply as emissions decline and eventually approach zero. Further research, development, and demonstration for the numerous technologies that can fill this gap in the puzzle is needed, to enable technology portfolios that minimize incremental costs. Options include longer-duration storage, hydrogen or synthetic fuels, biofuels, fossil or biomass with carbon capture, nuclear, geothermal, and solar-thermal with storage.

Moving Beyond the Power Sector: The power sector is widely viewed as a cornerstone for economy-wide decarbonization, through electrification of other energy end uses. Of course, electrification alone will not yield a zero-carbon economy; many applications cannot be electrified at reasonable cost, given current technology. These additional emissions sources are sizable and may prove more challenging to decarbonize, requiring a different set of technologies and policies.

Source: “Halfway to Zero: Progress towards a Carbon-Free Power Sector”, Berkeley Lab

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SUMMARY 

Holding the line at 1.5°C means reaching net zero by 2050 and ensuring a rapid decline in emissions beginning now. Countries around the world need to accelerate their efforts toward the energy transition without delay.

Despite clear evidence of human-caused climate change, widespread support for the Paris Agreement, and the prevalence of clean, economical and sustainable energy options, energyrelated carbon dioxide (CO2) emissions increased 1.3% annually, on average, over the period 2014 to 2019.4 While last year, 2020, was an outlier due to the pandemic, as emissions declined 7%, a rebound looks very likely, at least in the short term.

owever, the speed of the transition is far from what is needed to be in line with the Paris Agreement.Policies in place* will yield only global emissions stabilisation with a slight drop towards 2050 (as in the Planned Energy Scenario [PES]). However, if these policies are not fully implemented, emissions could potentially rise 27% over the coming three decades. Overall, the pace of future projections indicated in the Planned Energy Scenario falls far short of what is needed for a 1.5°C pathway. The time dimension is crucial, and a radical shift is required, starting today, based on readily available renewable energy and energy efficiency technologies that can be scaled up now. This Outlook outlines what is required for such a shift and presents an energy pathway that is consistent with limiting global temperature rises to 1.5°C – a pathway IRENA calls the 1.5°C Scenario (1.5-S).

The use of green hydrogen and green-hydrogen-based carriers, such as  ammonia and methanol, as fuels, would reach almost 2% in 2030 and 7% in 2050 from negligible levels today. In total, direct and indirect electrification would reach 58% of final demand.

The buildings sector would see the highest direct electrification rates, reaching 73% compared to 32% today. A rise would also be observed in the industry sector.

Green hydrogen can be produced at costs competitive with blue hydrogen by 2030, using low-cost renewable electricity, i.e., around USD 20/megawatt hour (MWh). If rapid scale-up occurs in the next decade, the cost of green hydrogen will continue to fall below USD 1.5/kilogramme (kg).

In transport, 67% of emission reductions come from electrification (direct) and hydrogen. In industry, hydrogen and electricity combined contribute 27% of mitigation needs. In buildings, the key solution is electrification (direct and indirect), contributing close to half of the reduction needed, followed by energy efficiency.

CO2 removal technologies, CCS, and related measures will be required for the remaining energy and process-related emissions.

Some emissions will exist by 2050 from the remaining fossil fuel use and from some industrial processes. There is thus a need for both CCS technologies that reduce emissions released to the atmosphere and for CO2 removal measures and technologies that, combined with long-term storage, can remove CO2 from the atmosphere, resulting in negative emissions. CO2 removal measures and technologies include reforestation and BECCS* and also, potentially, direct CCS and some other approaches that are currently experimental.

The CO2 produced from biomass is considered neutral to the atmosphere if the source of biomass is continually renewed as the biomass is harvested, for instance, in crop and forest cultivation. Because a crop or forest absorbs CO2 from the atmosphere as it grows and the CO2 emitted during combustion ends up back in the atmosphere, the overall carbon balance becomes neutral.

The biomass absorbs carbon from the atmosphere as it grows and the CCS plant prevents this carbon from going back to the atmosphere during biomass final use, storing it below ground.

Bioenergy combined with CCS (BECCS) would play a key role in power plants, co-generation plants and in industry specifically for the cement and chemical sectors, to bring negative emissions in line with a very constrained carbon budget. BECCS would contribute over 52% of the carbon captured over the period to 2050.

Natural gas would be the largest source of fossil fuel in 2050 with a share in total primary energy supply dropping to 13% from 26% in 2018. In 2050, natural gas would primarily be used in power plants, industrial processes and for blue hydrogen production (coupled with CCS).

Energy investments need to shift to low-carbon energy transition solutions and increase 30% overall.

Government plans in place today call for investing almost USD 98 trillion in energy systems over the coming three decades.

IRENA’s 1.5°C Scenario could be achieved with an additional USD 33 trillion over the planned investments, for a total investment of USD 131 trillion over the period to 2050 as shown in Figure 16. Over 80% (USD 116 trillion for the period to 2050 or around USD 4 trillion per year on average as shown in Table 1) needs to be invested in energy transition technologies (excluding fossil fuels and nuclear) such as renewables, energy efficiency, end-use electrification, power grids, flexibility innovation (hydrogen) and carbon removal measure.

The energy transitions at all levels depend on setting ambitious targets as part of a broad and comprehensive policy framework.

Off-grid solutions will play a major role in providing universal access to clean and reliable energy.

A broad set of policy measures is required to align the short-term recovery with longer-term transition, climate and socio-economic development objectives.

Understanding the socio-economic footprint of the energy transition is essential to optimising the outcome. If well understood and planned, structural socio-economic changes will improve the outcome of the transition and support its pace. A holistic assessment can inform energy system planning, economic policy making and other policies necessary to ensure a just and inclusive energy transition at global, regional and national levels.

The economic, social and environmental outcomes of multi-systemic interactions taking place during the energy transition are evaluated using socio-economic indicators, including economic activity (gross domestic product), jobs and a comprehensive welfare indicator that includes economic, social (including health), environmental and distributional dimensions. These are fundamental to the rapid transition needed to stabilise global warming at 1.5°C. Triggering the required collaborative framework for all of society requires inclusive policies that can properly address concerns about fair and just outcomes, both within and between countries.

Further, there is a need to establish transparent, secure, sustainable and fair supply chains for critical materials such as copper, lithium, cobalt and platinum, and rare earth metals. At the same time standards and certification systems will be needed for green hydrogen and green commodities. On a human skills level, technical development and training programmes are crucial. International trade will remain a cornerstone of future sustainable development and with appropriate regulations, technology innovation can benefit all nations.

The energy transition is a multisystemic process that reaches far beyond the energy sector.

Source: “World Energy Transitions Outlook”, IRENA

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KEY FINDINGS

The transformation of the global energy system needs to accelerate substantially to meet the objectives of the Paris Agreement

• Energy-related carbon dioxide (CO₂) emissions have increased 1.3% annually, on average, over the last five years. The gap between observed emissions and the reductions that are needed to meet internationally agreed climate objectives is widening.
• In the last few years the energy sector has started changing in promising ways. Renewable power technologies are dominating the global market for new generation capacity, the electrification of transport is showing early signs of disruptive acceleration, and key enabling technologies such as batteries are experiencing rapid reductions in costs.
• Despite these positive developments, deployment of renewable solutions in energy consuming sectors, particularly buildings and industry, is still well below the levels needed, and progress in energy efficiency is lagging.
• Structural change also plays a critical role in meeting global climate targets and enabling the high level of energy efficiency that is required. Changes include modal shifts in transport, as well as efforts in industry such as the circular economy and industry relocation to areas where renewable energy is plentiful.
• Investment in infrastructure needs to be focused on low-carbon, sustainable and long-term solutions that embrace electrification and decentralisation. Investment is needed in smart energy systems, power grids, recharging infrastructure, storage, hydrogen, and district heating and cooling in cities.
• The share of renewable energy in primary energy supply would grow from less than one-sixth today to nearly two-thirds in 2050 in the REmap Case.
• Energy efficiency must be scaled up substantially; the rate of energy intensity improvement would increase to 3.2% per year, up from recent historical averages of around 2.0% per year.
• Electricity would progressively become the central energy carrier, growing from a 20% share of final consumption to an almost 50% share by 2050, and renewable power would be able to provide the bulk of global power demand (86%) economically. As a result, gross electricity consumption would more than double.
• The transition to increasingly electrified forms of transport and heat, when combined with the increases in renewable power generation, can deliver around 60% of the energy-related CO2 emissions reductions needed to set the world on a pathway to meeting the Paris Agreement. When these measures are combined with direct use of renewable energy, the share of the emissions reductions from these combined sources reaches 75% of the total required.
• However, emissions will still need to be reduced further, and bioenergy will play a role in sectors that are hard to electrify, such as shipping, aviation and certain industrial processes. Biofuel consumption must be scaled up sustainably to meet this demand. Efforts also are needed to reduce non-CO2 greenhouse gas emissions and non-energy use emissions (such as by using waste-to-energy, bioenergy and hydrogen feedstocks); to reduce industrial process emissions; and to reduce fugitive emissions in the coal, oil and gas industries. Efforts are needed outside of the energy sector to reduce greenhouse gas emissions in agriculture and forestry.

The global energy transformation makes economic sense

• According to current and planned policies, the global energy sector will see cumulative investments of USD 95 trillion over the period until 2050. The transition towards a decarbonised global energy system will require scaling up investments in the energy sector by a further 16% (an additional USD 15 trillion by 2050). In total USD 110 trillion would be invested in the energy system, representing on average 2% of global gross domestic product (GDP) per year over the period.
• The types of investments will change, with a shift in the composition of investments away from the fossil fuel sector towards energy efficiency, renewables and enabling infrastructure. Crucially, the additional investments that are required are 40% lower than was estimated in the previous analysis (IRENA, 2018a), due largely to rapidly falling renewable power costs and the potential for further cost reductions, as well as the emergence of electrification solutions that are getting cheaper and more efficient.
• The additional investments needs are, however, front loaded. While additional investments are required in the first period of the transition (to 2030), as the year 2050 approaches, technology progress, better understanding of the power system and increasing electrification of end-use applications result in more optimistic, lower investment estimates.
• Energy sector subsidies totalled at least USD 605 billion in 2015 and are projected to increase to over USD 850 billion annually by 2050 in the Reference Case. In contrast the REmap Case would result in a decline in subsidies to USD 470 billion in 2050. The types of subsidies would change drastically, moving away from fossil fuels and renewable power technologies to technologies needed to decarbonise the transport and industry sectors. The REmap Case would result in a cumulative reduction in fossil fuel subsidies of USD 15 trillion below what would have occurred in the Reference Case by 2050, and in a net reduction of USD 10 trillion when including the increased support needed for renewables in the REmap Case.
• In total the savings from avoided subsidies and reduced environmental and health damages are about three to seven times larger than the additional energy system costs. In monetary terms, total savings resulting from the REmap Case could amount to between USD 65 trillion and USD 160 trillion over the period to 2050. Viewed differently, for every USD 1 spent, the payoff would be between USD 3 and USD 7.

The socio-economic footprint of the energy transformation measures the net result of the multiple interactions between the energy transformation and the socio-economic system

• The energy transition cannot be considered in isolation from the broader socio-economic system. For the transition to renewable sources and technologies to succeed, policies must be based on a more integrated assessment of the interactions between the evolving energy sector and the wider economy.
• Changes in the energy system have impacts throughout the economy. Globally, the transition promises GDP, job creation and human welfare benefits. By year 2050, the REmap energy transition brings about relative improvements of GDP and whole-economy employment of 2.5% and 0.2% respectively. In cumulative terms from 2019 to 2050 the GDP gains of the REmap Case over the Reference Case add up to 99 USD trillion. The global welfare indicator measuring the improvement of REmap over the Reference Case reaches in 2050 a value of 17%.
• As is the case with any economic transition, some regions and countries will fare better than others. Regions with high dependence on fossil fuel exports and/or weak, non-diversified domestic supply chains face an adjustment challenge. Failure to address distributional aspects can also introduce significant transition barriers.

The socio-economic footprint of the energy transformation is shaped in significant ways by the policy framework

• Besides the energy transformation characteristics (energy balances and investments), many other policy inputs can have an important impact on the socio-economic footprint. Carbon taxes and fossil fuel subsidies are among these policy inputs.
• Carbon taxes on the level required for a 2°C global warming climate goal can have a significant socio-economic impact, which will be positive or negative depending on the policy framework that accompanies the deployment of carbon taxes. Special care needs to be taken concerning the distributional impacts of carbon taxes, both within and between countries, with policy frameworks aiming at reducing inequalities becoming important energy transformation enablers.

A holistic employment policy is required for the energy transformation to have positive contributions in this welfare dimension

• Across the world economy, overall employment increases between 2018 and 2050 for both the Reference and REmap cases, with CAGRi of 0.45% and 0.46% respectively. The REmap Case produces more jobs than the Reference Case, with relative gains peaking around 2035 and remaining around 0.2% until 2050.
• The employment impact of the REmap transition in the energy sector is very positive, with new jobs associated with the transition (i.e., renewable generation, energy efficiency and energy flexibility) significantly outweighing the jobs lost in the fossil fuel sector.
• The geographic and temporal distribution of energy sector jobs gained and lost is unlikely to be well-aligned, while jobs in other sectors of the economy could decline.

Climate damages will have a significant impact on the socio-economic footprint

• It should be noted that the main socio-economic results presented (GDP and jobs) do not capture the impacts of climate change, the very driver of the energy transition on the economy.
• Climate damage impacts increase with time as the climate system responds to the cumulative GHG emissions. Macroeconomic performance under both the Reference and REmap cases is significantly impacted by climate damages, leading to a global GDP reduction of 15.5% and 13.2%, respectively, by 2050.

Improving the transition’s socio-economic footprint

• Modifying the socio-economic structure incorporating fair and just transition elements improves the socio-economic footprint and prevents barriers that could ultimately halt the transition.
• The socio-economic footprint can be substantially improved through greater ambition in all countries and regions. This would reap the benefit of minimizing climate damages, while the associated investment stimulus can produce important socio-economic benefits.
• Negative impacts on low-income countries must be addressed for the transition to be successful.

Source: “Global Energy Transformation : A Roadmap to 2050”, IRENA

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1. Petrochemicals, which turn oil and gas into all sorts of daily products – such as plastics, fertilisers, packaging, clothing, digital devices, medical equipment, detergents or tyres – are integral to modern societies.
2. Demand for plastics – the most familiar of petrochemical products – has outpaced all other bulk materials (such as steel, aluminium or cement), nearly doubling since the start of the millennium.
3. Petrochemicals are set to account for more than a third of the growth in oil demand to 2030, and nearly half to 2050.
4. In the longer run, Asia and the Middle East both increase their market share of high-value chemical production by 10 percentage points, while the share coming from Europe and the United States decreases. By 2050, India, Southeast Asia and the Middle East together account for about 30% of global ammonia production.
5. Although substantial increases in recycling and efforts to curb single-use plastics take place, especially led by Europe, Japan and Korea, these efforts will be far outweighed by the sharp increase in developing economies of plastic consumption
6. Oil companies are increasingly pursuing integration along the petrochemical value chain. For example, Saudi Aramco and SABIC have recently announced a large crude-to-chemicals project of 0.4 mb/d, five times the size of the only existing facility in Singapore.
7. By 2050, cumulative CO2 emission savings from increased plastic recycling and reuse are equivalent to about half the annual emissions from the chemical sector today.
8. The sector’s clean transition is led by carbon capture, utilisation and storage (CCUS), catalytic processes, and a shift from coal to natural gas. Some of the most cost-effective opportunities for CCUS can be found in the chemical sector.

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The centre of the global energy outlook has been influenced by renewables. Technological advances and decreasing costs have made renewables grow more rapidly in contrast to other energy sources. While the increase in wind, solar and other renewables has mostly occurred in the electricity sector, new technologies enable this change in other sectors.

Renewable energy deployment in transport, industry and buildings sectors has been increasing due to electric vehicles and heat pumps. Digitalisation and energy storage innovations also improve the potential for renewables to progress.

The accelerated deployment of renewables has initiated a global energy transformation with great geopolitical consequences. The global distribution of power, relations between states, the risk of conflict, and social, economic and environmental drivers of geopolitical instability will be affected by this transformation.

THE GLOBAL ENERGY TRANSFORMATION

• Renewable energy sources especially wind and solar energy have grown at an unprecedented rate over the last decade and continually exceeded expectations.
• Renewables are now the leading edge of a far-reaching global energy transition, combined with energy efficiency.[1]
• This ongoing transition to renewables is not just a shift from one set of fuels to another. The term ‘energy transformation’ that will have major social, economic and political implications obtains broader implications.[2]
• Renewables will also be a powerful vehicle for democratization. Energy supplies will be decentralized, also citizens, local communities and towns will be emancipated.

ENERGY TRANSFORMATION

The transition is based on 3 primary aspects: 1. Energy Efficiency, 2. Growth of Renewables, 3. Electrification

1. Energy efficiency enables low energy inputs to grow economically. In the 20^th century, the average energy demand growth rate was 3%, about the same as the global GDP growth rate. In recent decades, the primary energy demand is projected to increase by 1% per year by 2040.[3]
2. Growth of renewables: Renewables have become the fastest growing energy source.[4] Bioenergy, geothermal, hydropower, ocean, solar and wind are the main renewable energy sources.

• Solar and wind energy are growing very rapidly while the rest are growing more slowly.
• Solar and wind share a common feature: the amount of power they generate varies with weather and daytime. Therefore, they are called variable sources of renewable energy.
• The influence of the remarkable renewable energy growth was mainly felt in the electricity industry. Since 2012, renewables have increased their capacity to generate more energy than conventional energy sources.[5]
• In 2017, solar power added more new capacity than combined coal, gas and nuclear power plants.[6]
• Wind and solar generation now account for 6% of the world’s electricity generation, up from 0.2% in 2000. In total, renewables account for about one quarter of the global generation of electricity.[7]
• The power systems in Germany, Portugal and Denmark have been able to run entirely on renewables in the last year.

3. Electrification: Electricity has been the fastest growing final energy demand segment and has grown two-thirds faster than the total energy consumption since 2000. Since 2016, the electricity sector has attracted more investment than the upstream oil and gas sectors, a further reflection of the world economy’s ongoing electrification.[8]

• Scenarios that model a future energy compatible with the objectives of the Paris Agreement have a similar structure: a short-term peak in demand for fossil fuels, a rapid recovery of renewables and a long decline in demand for fossil fuels.[9] Figure 1 illustrates these dynamics.

As a whole, the sudden growth of renewables, especially solar and wind can mainly describe the global transformation of energy. The energy transition will affect oil, gas and coal differently, as they have different characteristics and are used in a variety of sectors.

THE FORCES OF CHANGE

1. DECLINING COST

There is a considerable shift towards renewable energy since the cost of the technologies have fallen sharply. The costs of renewable energy have declined especially in solar PV and wind by 73% and 22%, respectively.[10] Also, the cost of lithium-ion batteries has fallen by 80% since 2010.[11] It is suggested that by 2020, there will be considerable cost declines in solar and wind sources thus, resulting in more investments in renewable technologies.[12] IRENA suggests that by 2025, the global weighted average cost of electricity may fall by 26% from onshore wind, by 35% from offshore wind, by at least 37% from concentrated solar power (CSP) technologies, and by 59% from solar photovoltaics (PV).[13]

2. POLLUTION AND CLIMATE CHANGE

Fossil fuel use causes severe problems such as air pollution and climate change, increasing investor and public awareness on reducing fossil fuel use. Unless urgent measures are taken to reduce pollution and combat climate change, the world will not achieve the Paris Agreement goal. IRENA’s analysis shows that the growth of renewable energy together with energy efficiency is the most effective way to reach the goal of Paris Agreement.[14]

3. RENEWABLE ENERGY TARGETS

Many countries have ambitions to increase their deployment of renewable energy. 57 countries have developed plans to decarbonize the electricity sector and 179 countries for renewable energy.[15] Many countries are shifting towards renewables because they lack reserves of oil and gas, they want to rely less on imported energy sources. Even oil-producing countries such as The United Arab Emirates have plans to increase their renewable energy share in the energy mix.

4. TECHNOLOGICAL INNOVATION

Accelerating the deployment of renewable energy also includes the role of technological innovations. Digitalisation and energy storage innovations also opened new borders. New digital technologies, such as smart grids, the internet of things, big data and artificial intelligence are being used in the energy industry to increase efficiency and usage of renewable energy.

5. CORPORATE AND INVESTOR ACTIONS

Corporate and investor actions are also important as possible drivers of this change. Investor groups force companies to reduce their carbon footprints. In addition, some of the world’s leading companies are moving towards the same direction.

6. PUBLIC OPINION

Public ad civil society movements want carbon footprint to decrease. They push their government to have plans in order to reduce air pollution and carbon emissions.

WHY RENEWABLES WILL TRANSFORM GEOPOLITICS

There are differences between renewables and fossil fuels in many ways and these differences will have geopolitical outcomes.

• In most countries, even though fossil fuels that are concentrated on particular geographical locations, renewable energy resources can be found in one form or another.
• The majority of renewables take the form of flows while fossil fuels are in stocks. Energy stocks can be stored; they can only be used once. In contrast, the flow of energy does not exhaust itself and is more difficult to disrupt.
• Renewable sources of energy can be deployed at almost any scale and are better suited for decentralized forms of energy production and use.
• Renewable energy sources don’t have any significant costs. Solar and wind benefit from cost reductions of almost 20% for each capacity duplication.[16]

ENERGY SECURITY FOR FOSSIL FUEL IMPORTERS

• At least 80% of the world’s population lives in countries which are net fossil fuel importers.[17]
• In an economy driven by renewable energy, most countries will be able to achieve energy independence and therefore, they will have greater energy security. Countries that currently rely mainly on imports will be able to gain strategic and economic benefits.
• Countries that can develop their own renewable energy sources are better positioned in terms of energy security.
• Economically, a high degree of dependence on imports also creates costs and risks.
• Increasing the proportion of renewables in the energy mix can diminish these risks and give new potential to economic development.
• Countries that switch from imported fossil fuels to renewable energy will fundamentally enhance their balance of trade.
• Energy independence does not mean complete self-sufficiency or self-determination.[18] Even if a country can generate renewable energy, it does not necessarily choose to do so due to its comparative advantages. Even if the energy needs of a country are supplied entirely from domestic sources, international value chains and the trade in technology, goods and services will continue to benefit.
• Increasing energy security through the deployment of renewable energy can change the dynamics between exporters and importers of energy. In international politics, it will also reduce the role of oil and gas. Ensuring energy security is more a matter of domestic governance than of international security.

HOW RENEWABLES CREATE NEW TRADE PATTERNS

While trade in fossil fuels will decline, trade in at least 3 other areas will grow:

1. Trade of goods and technologies related to renewable energy will increase. There are large amounts of goods and technologies, from solar PV panels to smart meters and batteries, as well as their components, parts and related services.
2. Additional interconnections make grids more stable and resilient and they provide to increase trade. Renewables require flexible and interrelated power systems that can balance supply and demand.
3. Trade in renewable energy fuels may also grow significantly.[19] Such fuels like hydrogen allow seasonal storage of renewable electricity using existing infrastructure. They also have the potential to reduce emissions in hard-to-electrify sectors such as aviation and some industrial processes.[20]

CONCLUSION

• The global transformation of energy driven by renewables will have considerable geopolitical consequences. It will reconfigure relations among states and bring fundamental structural changes in economies and societies.
• Power is getting increasingly decentralized and diffused.
• China continues to grow because it has invested excessively in renewable technologies.
• In contrast, states that depend heavily on fossil fuel exports and do not adjust to the energy transition will confront risks of losing influence.
• The energy supply will no longer be controlled by a small number of states, as most countries will have the potential to attain energy independence and thus, improve their energy security.
• The transition brings considerable advantages. The energy security and independence of most countries; contribution to prosperity and job creation; enhancing food and water security; and developing sustainability and equity will be in a better situation thanks to the transition.
• Fossil fuel exporting countries may face problems unless they reinvent themselves for a new energy age; a rapid shift away from fossil fuels could create a financial shock with significant consequences for the global economy; workers and communities who depend on fossil fuels may be affected negatively.
• The energy transformation will achieve important actions like tackling climate change, combating air pollution, and promoting prosperity and sustainable growth.

[1] IRENA, OECD/IEA and REN21, Renewable Energy Policies in a Time of Transition, International Renewable Energy Agency, Organization for Economic Co-operation and Development, International Energy Agency, Renewable Energy Policy Network for the 21st Century, 2018.

[2] We use the term ‘energy transition’ to refer to the shift from fossil fuels to renewable energy sources. We use the term ‘energy transformation’ to refer to the broader implications of this shift.

[3] IEA, World Energy Outlook 2018, New Policies Scenario, International Energy Agency, 2018. Global GDP growth in the same period is now forecast to grow at 3.4 % per year.

[4] IEA, Global Energy and CO2 Status Report, International Energy Agency, March 2018.

[5] IRENA, Renewable Energy Statistics 2018, International Renewable Energy Agency, 2018.

[6] IRENA, Renewable Energy Statistics 2018, International Renewable Energy Agency, 2018; UNEP and BNEF, Global Trends in Renewable Energy Investment 2018, UN Environment Programme and Bloomberg New Energy Finance, 2018.

[7] IRENA, Renewable Energy Statistics 2018, International Renewable Energy Agency, 2018.

[8] IEA, World Energy Investment 2018, International Energy Agency, 2018.

[9] See, for example, Shell Global, Sky Scenario 2018 – Meeting the goals of the Paris Agreement, Shell Global, 2018; IEA, Sustainable Development Scenario, International Energy Agency, 2018; Equinor (2018), Energy Perspectives 2018; IRENA, REmap – Renewable Energy Roadmaps, International Renewable Energy Agency, 2018; DNV-GL, Energy Transition Outlook 2018, DNV-GL, 2018; and “Mitigation pathways compatible with 1.5°C in the context of sustainable development”, Chapter 2 of IPCC, Special Report: Global Warming of 1.5°C: An IPCC Special Report on the impacts of global warming of 1.5°C above preindustrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty, Intergovernmental Panel on Climate Change, 2018.

[10] IRENA, Renewable power generation costs in 2017, International Renewable Energy Agency, 2017.

[11] BNEF, New Energy Outlook 2018, Bloomberg New Energy Finance, 2018.

[12] IRENA, Renewable power generation costs in 2017, International Renewable Energy Agency, 2017.

[13] IRENA, The power to change: solar and wind cost reduction potential to 2025, International Renewable Energy Agency, 2016.

[14] IRENA, Global Energy Transformation: A Roadmap to 2050, International Renewable Energy Agency, 2018.

[15] REN21, Renewables 2018 – Global Status Report, Renewable Energy Policy Network for the 21st Century, 2018.

[16] DNV-GL, Energy Transition Outlook 2018, DNV-GL, 2018.

[17] Authors’ calculations based on data from the World Bank.

[18] Autarchy implies a complete absence of foreign trade.

[19] In general, these green fuels are often referred to as ‘power-to-X’, where ‘X’ stands for any fuel or feedstock from renewable power via electrolysis.

[20] The World Energy Council Germany estimates that a mature global market for synthetic fuels can supply between 10,000 and 20,000 TWh per year by 2050. This corresponds to about half today’s global demand for crude oil. Frontier Economics, International aspects of a power-to-X roadmap, World Energy Council Germany, October 2018.

Source: “The Geopolitics of the Energy Transformation”, IRENA

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