The global energy transition is underway, but is a 2-degree world within reach? In its alternative energy outlook, Carbon-constrained scenario 2018: Navigating a challenging path to lower global emissions, Wood Mackenzie explores how commodity demand and carbon emissions react by an accelerated deployment of power and transport sector technologies.
David Brown, senior analyst at Wood Mackenzie, explains: "The global energy transition will continue to progress, led in large part to technologies and decarbonistation trends we're already seeing in the marketplace – the rise of renewables, growth in electric vehicles, electrification of end-use demand, increasing efficiency.
"Our carbon-constrained scenario pushes the boundaries of our base-case view to illustrate a world where these trends join, and potentially outstrip, policy as a key force behind decarbonisation. This is a chance for us to step back and ask broader, strategic questions about the pace of change in the energy industry and what might be achievable if current market trends develop faster."
Under the carbon-constrained scenario, WoodMac predicts by 2040, the US, EU and China will see electric vehicles account for 100% of new vehicle sales, collectively displacing 11 million barrels per day (b/d) of oil and helping accelerate peak oil to 2031, five years ahead of its base case. Moreover, along with the pace of fleet electrification picking up, autonomous vehicles also become more widespread.
In WoodMac's base case view, autonomous technology would mainly be applied to electric vehicles (AEVs) used as "robo-taxis", with around five-times the utilisation of traditional private cars. In a carbon constrained world, these AEVs are forecast to take-off around 2030 instead of 2035, driven by stronger policy incentives and less regulatory hurdles.
With the electrification of global vehicle fleets well underway, by 2040 power demand from transport sector is expected to be over 1,900 terawatt hours (TWh) – more than 1.5 times larger than India’s power market in 2017.
Renewables are the clear winners in this carbon-constrained scenario, growing at an annual average rate of 11% between 2015 and 2035, and increasing their share of primary energy demand by a factor of seven over the same period. Wind and solar capacity grows nine-fold from 7% of total power supply today to nearly 40% by 2040. While not commercially viable today, large-scale energy storage technologies also eventually come to the fore, with 780 gigawatts installed globally by 2040.
Elaborating on what the scenario means for commodities, Brown said: "Fossil fuel use will not disappear any time soon. Our scenario envisages fossil fuels having a 77% share of global energy demand in 2035 – versus 79% in our base case – as major markets such as China and the EU reach similar levels of fossil fuel shares."
Natural gas will see continued demand growth through 2040, driven by emerging markets such as China, India and Southeast Asia, with Asia Pacific accounting for more than 60% of incremental demand 2018-2040. But in slower-growing power markets like the EU and USA with high penetration of renewables, gas demand growth will be more limited.
Coal however will bear the brunt of an accelerated energy transition, with demand declining by half by 2040, even with no international CO2 pricing regime as the power sector switches to gas and renewables.
While emissions fall much faster under a carbon-constrained scenario than Wood Mackenzie's base case, ultimately it will not be enough to put global emissions on a 2-degree path.
"Even with an accelerated pace of change, a ‘2-degree world’ remains out of reach in our accelerated scenario," Brown said. "Much more needs to happen around lowering non-power sector emissions to achieve such an outcome. Political momentum will be crucial and at present climate leadership is lacking."
"While the EU is still way ahead of others markets with its carbon regime, G20 or OECD countries need to step up and outline the next phase of carbon policies," he added. "COP 24, the next UNFCC conference, will be a barometer for how carbon policy will play out."