IEA: Pandemic to slow energy demand recovery. Upstream spending to pick up

A slow recovery from the Covid-19 pandemic or a deeper slump could delay a complete rebound in the world’s energy demand to 2025, the International Energy Agency said on Tuesday.

The International Energy Agency’s (IEA) said in its World Energy Outlook 2020 that the global energy demand would drop by 5 per cent in 2020, energy-related CO2 emissions by 7 per cent, and energy investment by 18 per cent.

The Outlook compared different scenarios to show how the energy sector could develop.

In the Stated Policies Scenario, which reflects today’s announced policy intentions and targets, global energy demand rebounds to its pre-crisis level in early 2023.

The Agency added that upstream investment would pick up from the low point in 2020, underpinned by a rise in the oil price to $75 a barrel by 2030. Although it is not clear whether this investment will come in time and, if it does come, where it will come from.

However, IEA stated that this does not happen until 2025 in the event of a prolonged pandemic and deeper slump, as shown in the Delayed Recovery Scenario. Slower demand growth lowers the outlook for oil and gas prices compared with pre-crisis trends. But large falls in investment increase the risk of future market volatility.

Renewables take starring roles in all scenarios, with solar at centre stage. Solar PV is now consistently cheaper than new coal- or gas-fired power plants in most countries, and solar projects now offer some of the lowest-cost electricity ever seen. In the Stated Policies Scenario, renewables meet 80 per cent of global electricity demand growth over the next decade. Hydropower remains the largest renewable source, but solar is the main source of growth, followed by onshore and offshore wind.

Fatih Birol, the IEA Executive Director, said: “I see solar becoming the new king of the world’s electricity markets. Based on today’s policy settings, it is on track to set new records for deployment every year after 2022.

“If governments and investors step up their clean energy efforts in line with our Sustainable Development Scenario, the growth of both solar and wind would be even more spectacular – and hugely encouraging for overcoming the world’s climate challenge”.

The Outlook showed that strong growth of renewables needs to be paired with robust investment in electricity grids which, if not invested in, could be a weak link in the transformation of the power sector.

Fossil fuels face varying challenges. Coal demand does not return to pre-crisis levels in the Stated Policies Scenario, with its share in the 2040 energy mix falling below 20 per cent for the first time since the Industrial Revolution.

But demand for natural gas grows significantly, mainly in Asia, while oil remains vulnerable to the major economic uncertainties resulting from the pandemic.

“The era of global oil demand growth will come to an end in the next decade”, Birol said. “But without a large shift in government policies, there is no sign of a rapid decline. Based on today’s policy settings, a global economic rebound would soon push oil demand back to pre-crisis levels”.

Global emissions are set to bounce back more slowly than after the financial crisis of 2008-2009, but the world is still a long way from a sustainable recovery. A step-change in clean energy investment offers a way to boost economic growth, create jobs and reduce emissions.

This approach has not yet featured prominently in plans proposed to date, except in the European Union, the United Kingdom, Canada, Korea, New Zealand, and a handful of other countries.

In the Sustainable Development Scenario, the next 10 years would see a major scaling up of hydrogen and carbon capture, utilisation and storage, and new momentum behind nuclear power.

“Despite a record drop in global emissions this year, the world is far from doing enough to put them into decisive decline. The economic downturn has temporarily suppressed emissions, but low economic growth is not a low-emissions strategy – it is a strategy that would only serve to further impoverish the world’s most vulnerable populations”, Birol added.

“Only faster structural changes to the way we produce and consume energy can break the emissions trend for good. Governments have the capacity and the responsibility to take decisive actions to accelerate clean energy transitions and put the world on a path to reaching our climate goals, including net-zero emissions.”

A significant part of those efforts would have to focus on reducing emissions from existing energy infrastructure – such as coal plants, steel mills, and cement factories. Otherwise, international climate goals will be pushed out of reach, regardless of actions in other areas. If today’s energy infrastructure continues to operate in the same way as it has done so far, it would already lock in a temperature rise of 1.65 °C.

Despite such major challenges, the vision of a net-zero emissions world is increasingly coming into focus. The ambitious pathway mapped out in the Sustainable Development Scenario relies on countries and companies hitting their announced net-zero emissions targets on time and in full, bringing the entire world to net-zero by 2070.

Reaching that point two decades earlier, as in the new Net Zero Emissions by 2050 case, would demand a set of dramatic additional actions over the next 10 years.

Bringing about a 40 per cent reduction in emissions by 2030 requires, for example, that low-emissions sources provide nearly 75 per cent of global electricity generation in 2030, up from less than 40 per cent in 2019 – and that more than 50 per cent of passenger cars sold worldwide in 2030 are electric, up from 2.5 per cent in 2019.