As a result of major transformations in the global energy system that take place over the next decades, renewables and natural gas are the big winners in the race to meet energy demand growth until 2040, according to the latest edition of the World Energy Outlook (WEO), the International Energy Agency’s (IEA) flagship publication.
The IEA says a detailed analysis of the pledges made for the Paris Agreement on climate change finds that the era of fossil fuels appears far from over and underscores the challenge of reaching more ambitious climate goals. Still, government policies, as well as cost reductions across the energy sector, enable a doubling of both renewables and of improvements in energy efficiency over the next 25 years. Natural gas continues to expand its role, while the shares of coal and oil fall back.
“We see clear winners for the next 25 years – natural gas, but especially wind and solar – replacing the champion of the previous 25 years, coal,” says Dr. Fatih Birol, the IEA’s executive director. “But there is no single story about the future of global energy: In practice, government policies will determine where we go from here.”
In the WEO, coal consumption barely grows in the next 25 years, as demand in China starts to fall back, thanks to efforts to fight air pollution and diversify the fuel mix. The IEA says the Paris Agreement, which entered into force on Nov. 4, is a major step forward in the fight against global warming. According to the WEO, the electricity sector is the focus of many Paris pledges; therefore, nearly 60% of all new power generation capacity to 2040 in the outlook’s “main scenario” comes from renewables, and by 2040, the majority of renewables-based generation is expected to be competitive without any subsidies. The WEO also says rapid deployment brings lower costs: Solar PV is expected to see its average cost cut by a further 40-70% by 2040 and onshore wind by an additional 10-25%.
However, the IEA says meeting more ambitious climate goals will be extremely challenging and require a step change in the pace of decarbonization and efficiency. Implementing current international pledges will only slow down the projected rise in energy-related carbon emissions from an average of 650 million tonnes per year since 2000 to around 150 million tonnes per year in 2040. While this is a significant achievement, it is far from enough to avoid the worst impact of climate change, as it would only limit the rise in average global temperatures to 2.7°C by 2100, according to the IEA. The agency says the path to 2°C is tough, but it can be achieved if policies to accelerate further low carbon technologies and energy efficiency are put in place across all sectors. It would require that carbon emissions peak in the next few years and that the global economy becomes carbon neutral by the end of the century.
“Renewables make very large strides in coming decades, but their gains remain largely confined to electricity generation,” says Birol. “The next frontier for the renewable story is to expand their use in the industrial, building and transportation sectors where enormous potential for growth exists.”
More information about the WEO is available here.
