DNV GL: COVID-19 alone not enough to hit Paris climate goals

The COVID-19 pandemic will have a dramatic impact on energy supply and demand in the short term and will have lasting impacts once the pandemic dissipates but on its own will not be enough to advance the world’s progress towards the Paris climate ambitions, classification society DNV GL said.

DNV GL said that its energy forecast was predicated on IMF’s longer outbreak scenario, where World GDP will shrink 6 per cent in 2020 with lingering effects of the pandemic reducing World GDP in 2050 by 9 per cent, relative to pre-pandemic forecasts.

Even with slower growth, though, the 2050 world economy will, according to DNV GL, still be twice its size today. In contrast, energy demand will not grow and will stay about the same as it is today, despite a larger population and world economy.

This is largely due to significant improvements in energy intensity, but also due to the effects of COVID-19.

Before the pandemic, DNV GL predicted total global energy demand in 2050 at 456 exajoules (EJ) with the latest historical figures at 424 EJ in 2018.

The new model now shows that the pandemic will reduce energy demand through to 2050 by 8 per cent, resulting in energy demand in 2050 at almost exactly the level it was in 2018.

Improvements in energy intensity will remain the most important factor in reducing energy demand in the coming decades, and the contraction due to COVID-19 comes on top of this.

DNV GL believes that lasting changes linked to COVID-19 are mainly behavioural and include the impact of the pandemic on the transport sector, especially aviation, but also on less office work and changed commuting habits, which will result in transport energy use never again reaching 2019 levels.

On the face of it, this appears to be good news for decarbonization – transport remains heavily oil-dependent and iron and steel are the so-called ‘hard to abate’ sectors, relying to a large degree on hydrocarbons to supply high-heat processes.

Declining demand in these sectors is one of the main reasons for the price weakness in hydrocarbons, with widespread write-downs in oil and gas assets. It appears likely that oil has already reached a supply plateau that DNV GL forecast would occur in 2022, before factoring in the pandemic.

The classification firm claims that it is certainly not game over for hydrocarbons, and especially not for natural gas, which it forecasts to take over from oil as the largest energy source in this decade.

However, the reduced return on capital and increased volatility in fossil fuel prices make investors look at these assets in the post-COVID world with a greater degree of caution with a more favourable look at renewables assets.

“Renewables have first place in the merit order of the power mix due to their very low operating costs, and short design and construction times. These assets are therefore more robust, and we predict a slightly faster recovery of the non-fossil capital expenditure in the next couple of years than will be the case for fossil energy”, DNV GL stated.

With the earlier than anticipated plateauing of oil, the forecast shows that CO2 emissions most likely have already peaked in 2019.

This appears to be good news from a climate goals perspective – but the longer-term decline in emissions is not significantly accelerated by the pandemic.

With peak emissions already passed and flat energy demand through to 2050, the energy transition is still not fast enough to deliver the Paris ambition of keeping global warming well below 2°C above pre-industrial levels.

According to DNV GL, the world would need to repeat the decline we’re experiencing in 2020 every year from now on to reach a 1.5-degree target.

“To put this in perspective, the COVID-19 impact on energy demand only buys humanity another year of ‘allowable’ emissions before the 1.5°C target is exhausted (in 2029) and a couple of years before the 2°C warming carbon budget is exhausted (in the year 2050)”, the classification society said.

The key to reaching the Paris goals, DNV GL said, remains policy – the political choices and policy delivered around the world that encourages the correct behavioural changes and enables the right technical solutions to scale.

Policy also represents the main uncertainty as to whether the pandemic will speed up or slow down the energy transition.

It is unclear whether the enormous COVID-19 economic stimulus packages being lined up by governments will be spent wisely on renewable energy sources, or expeditiously on fossil sources in the hope of bringing larger numbers of people back to employment more rapidly. DNV GL stated that both directions were being pursued, with strong regional variations.