STR 2021
03 Energy
3.1 Key trends
3.2 Accelerating the transition to zero-carbon energy
3.3 New frontiers in energy access

Despite growing momentum, a huge acceleration is required to transform energy and industrial systems in line with a 1.5°C pathway. As the International Energy Agency has confirmed, keeping to this goal means no new fossil-fuel projects. This transition will create many jobs, but more focus is needed on ensuring a just transition.

Radical changes to energy systems are required to limit global temperature rise to 1.5°C

Potential emissions from developed fossil-fuel reserves exceed carbon budgets in order to maintain a sustainable climate. Recent announcements have only closed the gap to 1.5°C by 11-14%.

Figure 77: Emissions from developed fossil-fuel reserves, compared with carbon budgets within range of Paris goals

“Developed reserves“ refers to those reserves that are expected to be recovered from existing wells and installed facilities or, if facilities have not been installed, that would involve a low expenditure (for example, when compared to the cost of drilling a well) to put the reserves on production.

Even if global coal use were phased out overnight, developed oil and gas reserves would still push the world beyond 1.5°C

Oil Change International/Reclaim Finance, “NGFS scenarios: Guiding finance towards climate ambition of climate failure?“

Net-zero targets continue to proliferate

Net zero targets are being set at all kinds of scales and types of organisations. There are now hundreds of cities with such targets.

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Emissions have quickly rebounded towards and beyond pre-COVID-19 levels

The initial lockdowns in March/April 2020 put a huge dent in emissions, but they have quickly come back to near pre-pandemic levels as economies have reopened. In the first quarter of 2021 China’s CO2 emissions grew at their fastest pace in more than a decade, increasing by 15% year-on-year, new analysis for Carbon Brief shows.

Figure 81: CO₂ emissions from fossil fuel and industrial purposes in China, 2014-21

Half-year and quarterly figures are expressed at an annual rate.

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Coal consumption is plateauing globally but needs to fall rapidly to meet climate goals

Though some countries continue to invest in coal, global demand is now clearly at a tipping point, and is in decline.

EJ = exajoule.

Renewables hit a tipping point in 2020

Renewables were the only source of electricity generation to grow last year, despite the pandemic. The International Energy Agency raised its forecasts for wind and solar capacity growth by 25% in a single year. Estimates also suggest that renewables investment will surpass upstream oil and gas investment in 2021.

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Green hydrogen is key to decarbonising many harder-to-abate sectors, including aviation, steel and shipping

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We also need to see a step change in energy efficiency

US GDP is on a long-term rising trend even as primary energy consumption declines, a sign of gradual improvements in energy efficiency.

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Richer people account for most emissions today and in the past

The distribution of energy consumption remains along income lines, though the historical responsibility for emissions is contested terrain.

According to the Global Carbon Project, for fossil fuel-related CO2 emissions between 1850 and 2019, the US is responsible for 25% and China for 13%. But if you shorten the timeframe to 1990-2019, then China is responsible for 21% and the US for 19%. China’s annual emissions are now larger than all OECD countries combined.

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The cost of renewables continues to fall

The cost reductions in photovoltaic technology and wind are astonishing.

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Renewables are meeting an ever-growing share of energy consumption

Renewables are still small, but account for a fast-rising share of global energy consumption.

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The pace must accelerate ~5x over the next decade to meet net-zero goals

Though daunting, this rate of change has already been seen in some markets. The rate of deployment in UK offshore wind has increased from an average of 250MW/yr across 2005-2010, to 1200MW/yr over the last five years.

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UK CO₂ emissions are back to 1880s levels

The UK is now half way to net zero, compared with emissions in 1990, a drop largely achieved via reduced coal consumption.

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Energy transition investments are growing, enabling ever-higher penetration of renewables on the grid

There are, however, question marks over whether developing countries are receiving enough investment for energy transition.

There is no shortage of money worldwide, but it is not finding its way to where it is most needed. Governments need to give international public finance institutions a strong strategic mandate to finance clean energy transitions in the developing world.

Fatih Birol, IEA Executive Director

The energy-storage market is growing, especially in Europe, though not as fast as it once was
Figure 95: Research, development and design (RD&D) in energy storage, rich countries, 2000-19

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Low-carbon electricity supply has surpassed coal, an important recent tipping point

For the first time ever, low carbon energy (renewables plus nuclear) accounts for a higher share of global electricity supply than coal. In the EU, renewables now contribute more to the electricity mix than all fossil fuels combined.

Figure 96: Share of low-carbon sources and coal in world electricity generation, 1971-2021

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China is embracing renewables and will peak coal consumption in about 2025

2020 was a tipping point for wind power in China. China’s renewable-energy generation is expected to soar over the next few decades.

China will strictly control coal-fired power generation projects, and strictly limit the increase in coal consumption over the 14th five-year plan period [2021-2025] and phase it down in the 15th five-year plan period.

President Xi Jinping, Leaders Summit on Climate, 2021

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Coal continues to fall away rapidly in the US

Industrial coal consumption has fallen by 75% since the 1970s and 50% in the past six years. Coal power stations are being retired in their dozens.

Coal is being replaced by renewables and fossil gas

Coal is being slowly squeezed out of the United States’s energy supply.

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International pressure on coal phase-out continues to grow

Over the past year, significant progress has been made towards ending overseas coal finance. The UK announced that it would end international support for fossil fuels in December 2020, including export finance, aid funding and trade promotion. It said very few exceptions would be made (and few if any will be made for coal).

In the months since, first South Korea and then Japan and the rest of the G7 countries, plus the EU, agreed to end international support for coal in 2021. This leaves only China as a major financier of coal projects without such a commitment.

Countries are also stepping up their domestic commitments to phase out coal. Globally coal retirements are accelerating, but in 2020 there was still a net-capacity addition.

Recognising that continued global investment in unabated coal power generation is incompatible with keeping 1.5°C within reach, we stress that international investments in unabated coal must stop now and commit to take concrete steps towards an absolute end to new direct government support for unabated international thermal coal power generation by the end of 2021

G7 Climate and Environment: Ministers’ Communiqué, 21 May 2021

Some regions remain very coal-reliant

Indonesia and Vietnam remain reliant on coal. That said, there is some cause for optimism. Both countries have recently cancelled a significant amount of coal and, Vietnam in particular, built a huge amount of new solar capacity last year. The Indonesian government will only allow the completion of coal plants that are already under construction or have reached their financial close, Energy and Mineral Resources Ministry director-general Rida Mulyana told a parliamentary hearing in May.

Demand for hydrogen is soaring

Global demand for pure hydrogen is rising steadily. Hydrogen consumption reached an all-time high in 2020. The most attractive use cases seem to be industrial processes that require temperatures of 1,000°C and higher. The emphasis, however, needs to be on green hydrogen: the current approach to generating hydrogen relies almost entirely on fossil fuels.

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Further investments in hydrogen are on the way

After declining during the global financial crisis, hydrogen investments across the rich world are rising again.

Figure 106: Research, development and design (RD&D) in hydrogen, rich world, 2004-19

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At a global level, the pandemic has hit energy access

In Africa about 10m-20m extra people lost access to energy in 2020, as incomes declined and poverty rates rose.

2020 is an estimated figure

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Billions of people have no access to cooling

In addition to the impact on health and quality of life, this is a drag on productivity. People in this position are disproportionately poor and living in some of the fastest-warming areas of the world.

There is of course a potential emissions downside of this rapid growth in air conditioning, unless we phase out HFCs and radically improve the efficiency of air conditioners. This can become a devastating feedback loop, whereby warming leads to more demand for air-conditioning which in turn creates more demand for air-conditioning.

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Over time, energy access and affordability have been improving

Practically everybody in the rich world has access to electricity, and in rich countries such as the US, the share of people's total expenditure devoted to energy has been in long-term decline. The share of people with access to electricity is rising fast in poorer countries but there is a long way to go.

Figure 111: Share of total expenditure devoted to gasoline and energy, US, 1929-2020

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Access to cleaner fuels has also increased at a global level

A growing share of the global population has access to clean fuels.

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Efficient electric cooking could be a game changer for indoor air quality

Electric cooking is already cheaper than firewood and charcoal in some settings and costs are coming down.

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Off-grid solar investment is rising

This is likely to increase global access to energy.

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Off-grid investment is rising
Figure 115: Corporate investment into off-grid energy access companies, pre-2010-2019
There is concern that fossil gas could play a big role in Africa’s energy expansion

Despite the cost and climate advantages of renewables, there is a risk that rising energy demand in African countries will be met by gas or other fossil fuels.

African decision-makers need to act quickly if the continent wants to avoid being locked into a carbon-intense energy future.

Alova et al, 2021

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China’s overseas investments are key to how energy systems evolve globally

Clean energy accounted for over half of energy investments in China's Belt & Road initiative in the first half of 2020. Coal investments are still a big concern.

Figure 117: Energy investments, Belt and Road Initiative, 2014-20 (first half only)

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