Energy Crisis Reinforcing Two-Speed Energy Transition in The Short Term

Energy Crisis Reinforcing Two-Speed Energy Transition in The Short Term

The heightened focus on energy security and the rising cost of energy is reinforcing the difference in decarbonization speed between Europe and the rest of the world – according to the sixth edition of DNV’s Energy Transition Outlook. Europe, which can be regarded as the leader of the energy transition, will double down on renewables and energy efficiency to increase its energy independence. European gas consumption will fall dramatically as a result of the war in Ukraine. Compared to last year’s forecast, DNV sees the continent consuming almost half the amount of natural gas in 2050. Gas will meet just 10% of Europe’s energy demand in 2050 compared to 25% today.

More broadly, inflationary pressures pose a short-term challenge to renewable growth. According to DNV’s Outlook, the global electric vehicle (EV) ‘milestone’ – when the EV share of new vehicle sales surpasses 50% – has been delayed by one year to 2033.

However, the impact of the current crisis on the overall energy transition is outweighed by the plunging costs of renewables and increased carbon costs in the longer term.

For the first time, DNV’s forecast sees non-fossil energy nudge slightly above 50% of the global energy mix by 2050. This is mainly because of the growing and greening of electricity production. Electricity production will more than double and electricity share will grow from 19% to 38% of the global energy mix over the next 30 years.

The short-term increase of coal consumption will not prevent it from rapidly exiting the energy mix with its peak back in 2014. Oil has been approaching a plateau for some years and it will start to decline sharply from 2030 onwards. As a consequence of the war in Ukraine, global gas consumption will be lower than previously forecast. Before the war, DNV forecast natural gas would be the single largest energy source by the end of this decade, but this has been delayed to 2048.

Pathway to Net Zero

Alongside the ‘best estimate’ forecast for the energy transition the Outlook this year also includes the Pathway to Net Zero, which is DNV’s most feasible route to achieving net zero emissions by 2050 and limiting global warming to 1.5°C. Despite UN Secretary General António Guterres warning at COP-26 that the situation is Code Red for humanity, DNV forecasts that the planet is on course to warm by 2.2°C by 2100.

Global CO2 emissions reduction of 8% every year is needed for a net zero by 2050. In 2021, emissions were rising steeply, approaching pre-pandemic all-time highs, and 2022 may only show a 1% decline in global emissions. That makes for two ‘lost’ years in the battle against emissions.

Reaching net zero globally in 2050 will require certain regions and sectors to go to net zero much faster. OECD regions must be net zero by 2043 and net negative thereafter; with carbon capture and removal enabling negative emissions. Some sectors like electricity production will need to reach net zero before 2050, while other sectors like cement and aviation will still have remaining emissions. In our net zero pathway the maritime sector needs to reduce emissions by 95% by 2050.

According to our Pathway to Net Zero, no new oil and gas will be needed after 2024 in high income countries and after 2028 in middle- and low-income countries. Investments in renewables and grid need to scale much faster; renewables investment needs to triple and grid investment must grow by more than 50% over the next 10 years.

DNV’s Pathway to Net Zero requires much greater policy intervention than we see today. The full policy toolbox must be unpacked, including; higher carbon taxes and subsidies, stronger mandates, bans and financial incentives to encourage renewables to replace fossil fuels, and smarter regulation and standards.

“With COP-27 approaching, it is important that policymakers recognize the huge opportunities inherent in decarbonizing the energy mix in light of the mounting costs of climate change impact. The technology exists to achieve net zero emissions by 2050, but for this to happen, we must utilize the scope of the policy toolkit,” said Remi Eriksen, Group President and CEO of DNV.



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