The era of global oil demand growth will come to an end in the next decade, but a rapid decline is unlikely without a large shift in government policies, according to the newly-launched World Energy Outlook 2020, the International Energy Agency’s flagship publication
The COVID-19 crisis has caused more disruption to the global energy system than any other event in recent history. But whether this upheaval ultimately helps or hinders efforts to accelerate clean energy transitions will depend on how governments respond to today’s challenges, the IEA argues. A surge in well-designed energy policies is needed to put the world on track for a resilient energy system that can meet climate goals.
The new report provides the latest IEA analysis of the pandemic’s impact: global energy demand is set to drop by 5% in 2020, energy-related CO2 emissions by 7%, and energy investment by 18%. The WEO’s compares different scenarios that show how the energy sector could develop over the next 10 years.
In the Stated Policies Scenario, which reflects today’s announced policy intentions and targets, global energy demand rebounds to its pre-crisis level in early 2023. However, this does not happen until 2025 in the event of a prolonged pandemic and deeper slump. Slower demand growth lowers the outlook for oil and gas prices compared with pre-crisis trends. But large falls in investment increase the risk of future market volatility.
Renewables feature strongly in all the IEA’s scenarios, with solar centre stage. Supportive policies and maturing technologies are enabling very cheap access to capital in leading markets. Solar PV is now consistently cheaper than new coal- or gas-fired power plants in most countries, and solar projects now offer some of the lowest cost electricity ever seen. In the Stated Policies Scenario, renewables meet 80% of global electricity demand growth over the next decade.
“I see solar becoming the new king of the world’s electricity markets. Based on today’s policy settings, it is on track to set new records for deployment every year after 2022,” said Dr Fatih Birol, the IEA's executive director. “If governments and investors step up their clean energy efforts in line with our Sustainable Development Scenario, the growth of both solar and wind would be even more spectacular – and hugely encouraging for overcoming the world’s climate challenge.”
The WEO-2020 shows that strong growth of renewables needs to be paired with robust investment in electricity grids.
In the IEA’s Sustainable Development Scenario, the global energy economy would follow a different post-crisis path. As well as rapid growth of solar, wind and energy efficiency technologies, the next 10 years would see a major scaling up of hydrogen and carbon capture, utilisation and storage, and new momentum behind nuclear power.
Fossil fuels face varying challenges, according to the IEA. Demand for natural gas grows significantly, mainly in Asia, while oil remains vulnerable to the major economic uncertainties resulting from the pandemic.
“The era of global oil demand growth will come to an end in the next decade,” Dr Birol said. “But without a large shift in government policies, there is no sign of a rapid decline. Based on today’s policy settings, a global economic rebound would soon push oil demand back to pre-crisis levels.”
Global emissions are set to bounce back more slowly than after the financial crisis of 2008-2009, but the world is still a long way from a sustainable recovery. A step-change in clean energy investment offers a way to boost economic growth, create jobs and reduce emissions, the iEA argues.
“Despite a record drop in global emissions this year, the world is far from doing enough to put them into decisive decline,” said Dr Birol. “Only faster structural changes to the way we produce and consume energy can break the emissions trend for good. Governments have the capacity and the responsibility to take decisive actions to accelerate clean energy transitions and put the world on a path to reaching our climate goals, including net-zero emissions.”
A significant part of those efforts would have to focus on reducing emissions from existing energy infrastructure – such as coal plants, steel mills and cement factories. Otherwise, international climate goals will be pushed out of reach, regardless of actions in other areas.
Despite such major challenges, the vision of a net-zero emissions world is increasingly coming into focus. The ambitious pathway mapped out in the Sustainable Development Scenario relies on countries and companies hitting their announced net-zero emissions targets on time and in full, bringing the entire world to net zero by 2070.
