Report calls for a balancing act, recommends maintaining fossil fuels backing
Global emissions are on track to raise temperatures by around 2.4 degrees Celsius under existing policy settings, predicted the latest World Energy Outlook report from the International Energy Agency (IEA). The report’s standout statement is the anticipated peak in fossil fuel demand by the end of this decade.
Noting positive shifts towards Net-Zero commitments and clean energy, it highlighted the urgent need for increased investment, diversified energy sources, and geopolitical considerations in the global energy transition. For India, it commended energy progress but underscored the continued rise in fossil and space cooling demand.
The IEA recently released its flagship World Energy Outlook report, 2023. Under existing government policies and those under development around the world (referred to as the STEPS scenario), global emissions would raise global temperatures by approximately 2.4°C, the report projected.
It is also worth noting that the Intergovernmental Panel on Climate Change, in its synthesis report of the 6th Assessment Cycle, noted with medium confidence that if the existing (2020) policies are continued, the Earth’s temperature will likely increase by 3.2°C by the year 2100.
The highlight of the report is its take on fossil fuel demand for the years to come. For the first time, the IEA projected that fossil fuel demand will peak by the end of this decade under the STEPS scenario. This includes coal, where a decline is expected due to decreasing capacity additions in coal-fired power and iron and steel production.
Oil demand, primarily driven by road transport, is set to peak before 2030, with the rise of electric vehicles (EVs) contributing to this shift. Natural gas, once seen as a ‘golden age’, is also projected to peak by 2030 as growth slows and demand decreases in the power and building sectors.
This projection stands in stark contrast with what the Organization of the Petroleum Exporting Countries (OPEC) had to say in its World Oil Outlook report. When the IEA came out with its findings on the peaking of fossil fuels, OPEC referred to its projection as ‘an extremely risky and impractical narrative’.
Besides, natural gas consumption was earlier expected to grow, but the 2022 events, including the Russian invasion of Ukraine, have made the agency significantly ramp down demand projections over the next decade. Liquefied natural gas (LNG) demand in 2050 is also 15 per cent lower than projected earlier.
Currently, most investments favour clean energy and infrastructure, amounting to approximately $1.8 trillion, compared to $1 trillion in fossil fuels. All projections point to a requirement for increased energy investments, with estimates ranging from $3.2 trillion to $4.7 trillion by 2030.
In the beginning, increased requirements for capital investment in clean energy will be offset by lower operating costs (compared with fossil fuel-based energy), improvements in trade balances and greater energy security as energy needs will be met mostly by domestic renewable sources, the document claimed.
The agency recommended maintaining investments in fossil fuels across all scenarios to fulfil current demand and prevent abrupt supply shortages, while simultaneously warning against overinvestment. It contended that both excessive and inadequate investments in fossil fuels pose risks, with a greater emphasis on the risks associated with overinvestment
While celebrating the increasing number of Net-Zero commitments that now cover over 85 per cent of global energy-related emissions, targets for EVs in regions like the EU, China, and the US that are reshaping the automotive markets, and the rapid deployment of clean energy as some of the 'reasons for hope,' the report also highlights areas that require urgent attention.
Firstly, there is a need to scale up clean energy investment, particularly in emerging markets and developing economies outside of China, as these regions have witnessed stagnant investment since 2015. From 2015 to 2022, advanced economies and China dominated with over 95 per cent of global electric car and heat pump sales, along with almost 85 per cent of wind and solar capacity increases.
The analysis indicated that scaling up clean energy investment faces obstacles such as financial constraints, government debt and high clean energy project costs. To overcome these challenges, the report suggested implementing stronger domestic policies and increasing global assistance in the form of concessional funding to reduce investment risks and attract private capital.
Secondly, the report emphasised the importance of ensuring a balanced mix of investments, rather than relying solely on solar, wind power, and electric vehicles. It pointed to the significance of investments in infrastructure, grid expansion, low-emission fuels, and carbon capture technologies.
The Net Zero scenario called for an annual expansion of two million kilometres for transmission and distribution grids by 2030, according to the report. In an earlier report on electricity grids and secure energy transitions, the IEA highlighted barriers to grid expansion.
Regionally, it noted that the financial health of utilities affects grid development in India, Indonesia and South Korea, while emerging markets in Africa face high capital costs. In contrast, Europe, the United States, Chile, and Japan primarily encounter challenges related to public acceptance and regulatory reforms.
A third challenge highlighted in the report is the potential for energy and mineral security concerns as the sector transforms globally, leading to supply concentration and critical mineral shortages for clean energy technologies. As a solution, the IEA suggests increasing investment in mining and related extractive processes — a proposition fraught with environmental, social and geopolitical risks.
The IEA emphasised the importance of political and commercial ties between energy producers and consumers in managing energy supply and demand. It highlighted that strong global energy markets, like oil and natural gas, along with strategic reserves, have historically helped reduce risks from severe weather events and geopolitical disruptions.
A prime example of these geopolitical challenges was Russia’s invasion of Ukraine, which led to price spikes in gas supply but ultimately failed to exert political leverage. Russia’s actions have caused a significant downward revision in global natural gas demand.
Changes in how we use energy can also affect global politics. As we shift towards cleaner energy sources, we rely less on fossil fuels, which are often controlled by groups like OPEC.
Taking the example of OPEC, the report said though the group’s share of energy supply is projected to grow even as demand for fossil fuels decreases, they’re actually losing power because consumers have more and better clean energy options.
Transitions to clean energy may destabilise some fossil fuel-producing states that fail to diversify away from fossil-based economies, it added.
The report lauded the transformation in India’s energy landscape over the last few decades, with commendable achievements in power generation, clean cooking access, and petroleum refining. But it highlighted some concerns going forward.
India’s energy outlook
For one, India’s energy demand is set to skyrocket. Unfortunately, this is projected to lead to a substantial increase in the demand for oil and natural gas, resulting in a significant rise in emissions.
A concerning aspect of India’s energy consumption is the surge in air conditioner ownership. As temperatures soar, electricity demand for cooling surges, with nearly 10 per cent of total electricity consumption attributed to space cooling. With household air conditioner ownership projected to increase ninefold by 2050, this trend will further exacerbate energy demands and peak electricity requirements, necessitating significant investments in infrastructure.
One critical question revolves around whether India’s domestic solar photovoltaic (PV) module manufacturing can keep pace with its solar capacity growth. While the agency ties hopes to the Production Linked Incentives programme, the nation for now remains a net importer of solar PV modules.
As governments, the energy industry and climate advocates head to the 28th Conference of Parties (COP28) to the United Nations Framework Convention on Climate Change in Dubai in December, the IEA proposed five energy ambitions — triple renewable capacity, double energy efficiency progress, cut methane from fossil fuels by 75 per cent, boost clean energy investment in emerging economies and ensure an orderly decline in fossil fuel use.
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