While climate science calls for urgent action to limit global warming to 1.5 degrees Celsius, concerns for energy security will add complexity to achieving a net zero economy. Governments and corporates should find a pathway that best suits them, set interim targets, report progress against these targets, and invest early with a long-term mindset.
What a year for energy security, energy transition and climate change
The Russia-Ukraine war – and the consequent energy crisis – has complicated the discussion around the global energy transition and climate change.
The topic of energy security will continue to be important for policymakers, corporate decision-makers, and investors as they plan their pathways toward a net zero economy.
But the Intergovernmental Panel on Climate Change (IPCC) says the routes to net zero are becoming more complex, with its calls for immediate and bold action turning louder each year.
More than one year into the war, and in light of a recently published IPCC report, we examine what the science of climate change means for the global economy, how energy security comes into play, and what that means for the energy transition worldwide.
IPCC report shows increased concern about climate risks
IPCC, an intergovernmental agency of the United Nations, is considered the most authoritative source of scientific assessments of climate change. In March, the organisation released the Synthesis Report of its sixth assessment cycle, which not only provides a comprehensive and evolving analysis of climate science, but also offers recommendations for policymakers. Some of the key messages of this report include:
- The world has already reached 1.1 degrees Celsius of warming compared to pre-industrial levels, which has led to detrimental impacts not seen in human history. This indicates that the door to limiting global warming within 1.5 degrees Celsius of increase is rapidly closing. But luckily, it remains open for now, and to get there, all economic sectors across the world need to be involved in rapid and strong actions to reduce emissions.
- For the first time in its history, the IPCC concludes that the world already has too much unabated fossil fuel production. According to the report, the existing unabated fossil fuel infrastructure is already large enough to deplete the world’s 500 gigatonnes (Gt) of carbon budget – the total amount of carbon dioxide (CO2) allowed to be emitted if we are to keep global warming within 1.5 degrees Celsius with a 50% likelihood of success. The report also finds that current investment in fossil fuels still exceeds that for climate adaption and mitigation. This could add more pressure to negotiations to phase down fossil fuel use at COP28 this year, as well as more pressure for companies with large fossil fuel footprints to decarbonise faster.
- Like last year’s report, the IPCC highlights the essential role of carbon dioxide removal (CDR), as well as carbon capture and storage (CCS), in bringing down global emissions. There is a distinction between the two: although both CDR (e.g. forestation, direct air capture, bioenergy with CCS, etc.) and CCS involve capturing CO2 and storing them underground, CDR results in a net decrease in emissions but CCS does not since it only captures the extra emissions from economic activities. Nevertheless, both methods are highlighted in the IPCC report. The report emphasises that CDR will be essential from now on to bring global emissions to net zero, and CCS is crucial in slashing emissions from fossil fuels and the industrial sector.
There are multiple ways to reach a net zero economy…
That said, the IPCC has assessed around a hundred scientific pathways that limit global warming to 1.5°C by 2100. It turns out that multiple pathways are possible depending on different technology options. The main technology options are:
- Energy efficiency gains.
- Wind and solar energy.
- Hydrogen and other synthetic fuels.
- CDR and CCS.
The International Energy Agency’s (IEA’s) net zero by 2050 scenario is often seen as the benchmark scenario or pathway. Compared to other scenarios, it relies less on CCS and CDR technologies and more on energy efficiency, renewables and hydrogen. Still, significant amounts of CCS and CDR are needed to reach the net zero target. In fact, there are hardly any scenarios that do without these technologies and those that do rely on extraordinary energy efficiency gains that seem hard to realise.
Whichever pathway they choose, policymakers, corporate decision-makers, and investors should act fast. While the net zero by 2050 goal seems to be far on the horizon, it translates into a 50-60% emission reduction target by 2030. That’s just around the corner, given the long lead time for serious emission reduction programmes.
Acting fast is cost-effective too. The IPCC concludes that “mitigation pathways with early emissions reductions represent higher mitigation costs in the short-run but bring long-term gains for the economy compared to delayed transition pathways”. The report also suggests that taking earlier mitigation action can lead to higher long-term GDP than achieving the same global warming level by 2100 with weaker early action.
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