World heading for a 3-degree C warming trajectory, as political headwinds slow the energy transition
May 02 2024 - 5:20AM
World heading for a 3-degree C warming
trajectory, as political headwinds slow the
energy transitionWoodMac report looks at the
implications of a delayed energy transition, amid political
uncertainties, inflation and elections across the
world
LONDON, 02 May 2024 – A five-year delay to the
energy transition could see the global average temperature rise to
3-degree Celsius above pre-industrial levels, according to Wood
Mackenzie’s latest analysis: ‘A delayed energy transition’.
Wood Mackenzie’s delayed energy transition
scenario, which analysed the impact a five-year delay might have on
global decarbonisation efforts, expects annual average spending to
fall to US$1.7 trillion. This is 55% lower than Wood Mackenzie’s
net zero 2050 scenario*, which maps out what’s required to meet the
Paris Agreement targets.
In terms of total investment, a delayed
transition could cost up to US$48 trillion, a significant decrease
from Wood Mackenzie’s net zero scenario, which estimates a total of
US$75 trillion. The oil and gas sector CAPEX rises to 31%, as power
sector spending is expected to remain at its current level of 60%,
in a delayed transition. Spending could fall to under 10% in the
net zero scenario if the power sector gets 80% of total spend.
For metals and mining sectors, CAPEX is the most
resilient and remains around 6% of the total cross all scenarios.
In contrast, despite their key role in the overall energy
transition, investment into hydrogen and carbon, capture,
utilisation, and storage (CCUS) drop to 2%, compared to 8% in Wood
Mackenzie’s net zero scenario.
“With half of the global population heading to
polls in 2024, political realities and climate scepticism in the
major emitting countries, such as the US and Europe, could reduce
the support for the transition as voters seek economic security and
price stability,” said Prakash Sharma, Vice President, Scenarios
and Technologies at Wood Mackenzie, and author of the report.
“The global stocktake at COP28 in December 2023
also confirmed that no major country was on track to meet the Paris
aligned commitments and that strong policy action and capital
investment were necessary to accelerate the transition. Indeed,
Europe and the UK have already pushed back 2030 climate goals and
other countries may follow suit,” Sharma added.
According to the scenario, emissions are
expected to peak in 2032 and the remaining carbon budget for a 1.5
˚C world will be used up by 2027, further weakening countries’
ability to deliver the Paris Agreement goals in time by 2050.
Renewables-led electrification looks
increasingly more challenging, in Wood Mackenzie’s delayed
scenario. Solar and wind dominate power markets in the longer term,
but near-term additions are slowed due to transmission bottlenecks.
Unabated thermal supply provides much of the flexible generation to
balance power grids.
Higher interest rates and supply chain
bottlenecks raised renewables costs by 10% to 20% in recent years.
Expensive renewables costs will further delay low-carbon hydrogen
cost declines, reducing demand to 100 million tonnes (Mt) in 2050,
nearly 50% lower than the base case.
A slower transition means carbon capture and
removal technologies would need to play a dominant role in
restoring the carbon balance and achieving long-term climate goals.
CCUS uptake reaches 225 Mt by 2030 in Wood Mackenzie’s delayed
transition and continues to scale as policy incentives expand and
storage infrastructure is built.
In the delayed transition scenario, oil demand
peaks at 114 million barrels per day (mb/d) in 2033, nearly 6 mb/d
higher than the base case due to slower electric vehicle (EV)
adoption outside China. Gas demand peaks at 4,536 billion cubic
meters of natural gas (bcm) in 2045, nearly 100 bcm higher than the
base case. Meanwhile coal demand falls slowly, keeping a 3% higher
trajectory than the base case in this decade.
“Lower renewables and hydrogen production create
headroom for additional gas demand growth, but coal’s resilience
limits upside. Commodity markets look tighter and volatile for
longer unless investment in supply picks up,” Sharma said.
ENDS
Editor’s Notes:
This report is part of Wood Mackenzie’s Energy
Transition Outlook series.
Wood Mackenzie published its most recent base
case outlook in September 2023. Since then, the risks of delays in
the transition to low-carbon energy have grown, particularly
because of shifts in policy and politics in several key economies.
As a result, we are publishing here a Delayed Energy Transition
scenario, looking at the implications of a five-year delay to
global decarbonisation efforts.
Scenario definitions*:
- Base
case - Wood Mackenzie’s base case view across all
commodity and technology business units – our central, most likely
outcome.
- Country
pledges scenario - Wood Mackenzie’s scenario on how
country pledges may be implemented in the future. The 2˚C
trajectory aligns with the upper temp limit from the Paris
Agreement.
- Net zero
2050 scenario - Wood Mackenzie’s scenario on how a 1.5˚C
world may play out over the next 30 years. Carbon emissions align
with the most ambitious goal of the 2015 Paris Agreement.
- Delayed
energy transition scenario - the implications of a
five-year delay to global decarbonisation efforts modelled in the
base case.
Relevant news and commentary
- Press
release: New Wood Mackenzie analysis warns world heading for 2.5C
global warming without immediate action
For further information please
contact:Vivien Lebbon, T: +44 330 174 7486, E:
Vivien.lebbon@woodmac.com
About Wood Mackenzie Wood
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of an energy revolution, businesses and governments need reliable
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Together, we deliver the insight they need to separate risk from
opportunity and make bold decisions when it matters most. For more
information, visit woodmac.com.
- Delayed Energy Transition-Wood Mackenzie