IEA signals peak oil in next decade as renewables take upper hand

Global greenhouse gas emissions from electricity generation are on course for a dramatic seven per cent drop in 2020 due to plummeting economic activity caused by the coronavirus crisis, setting the scene for renewables to dominate the recovery at the expense of fossil fuels.

That is the headline conclusion of the International Energy Agency's (IEA) latest annual World Energy Outlook report today, which offers the influential think tank's most detailed analysis yet of the state of the net zero transition during an unprecedentedly tumultuous year for the global economy.

As has been widely expected, energy-related emissions are projected to decline significantly in 2020 as a result of declining energy demand, which the IEA says is set to fall five per cent overall compared to last year.

But the agency warned that while the drop in CO2 emissions may offer a short term boost to efforts to tackle the climate crisis, the question as to whether the Covid-19 pandemic would hinder or accelerate the net zero energy transition in the coming years would depend on global governments' response, and their commitment to delivering a green recovery.

Echoing the UN's rallying cry for a "decade of action" on tackling climate change, the IEA said the next 10 years would be pivotal both in navigating the world's pathway to recovery from the current crisis, and in terms of avoiding another even greater crisis in the shape of a climate catastrophe.

The agency said global energy demand and associated emissions are set to bounce back slower than they did after the financial crisis in 2008-09, but warned the world was still a long way away from a sustainable recovery.

Under a 'business-as-usual' scenario based on current government policies and commitments, the IEA said global energy demand would rebound to pre-pandemic levels by 2023, or potentially as late as 2025 in the event of a prolonged economic slump.

And despite an expected 18 per cent drop in clean energy investment in 2020 as a result of the pandemic, the report projects renewables deployment will surge worldwide under current policy commitments, with the sector meeting up 80 per cent of projected electricity demand growth in the coming decade.

Offering some of the lowest cost electricity ever seen and providing power at prices that are consistently cheaper than oil and gas, solar is set to be the star of the show, followed by onshore and offshore wind - although hydropower will continue to hold the highest capacity for power generation by 2030, the IEA said.

The report also highlights how renewables could enjoy even more impressive growth if governments ramp up their climate and clean energy ambitions in the coming decade, alongside significant growth in investment in hydrogen and carbon capture utilisation and storage (CCUS) technologies.

"I see solar becoming the new king of the world's electricity markets," said Fatih Birol, executive director of the IEA. "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."

But the report also warns that in order to avoid locking in 1.65C of warming by the end of the decade, governments and investors must focus on reducing emissions from existing energy infrastructure, not just building new cleaner generation. Moreover, it notes that a Paris Agreement compatible scenario would see electric models account for half of all new car sales, up from just 2.5 per cent today.

Meanwhile, fossil fuels are likely to bear the brunt of the 2020 downturn. For example, coal is unlikely to ever recover to pre-pandemic levels as it continues its decline towards making up less than 20 per cent of the global energy mix in 2040, the IEA said.

And slower energy demand growth means a lower outlook for oil and gas prices compared to 2019, with peak oil likely to hit within the next decade. However, oil demand is unlikely to decline unless there are significant changes in government policy frameworks, according to the report.

"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."

Jess Ralston, analysis at the Energy and Climate Intelligence Unit (ECIU) think tank, said the IEA's latest annual report on the state of the global energy sector and its various decarbonisation trajectories offered "yet another clear signal that the energy transition is already underway".

She therefore urged governments, including the UK's, to place renewables and the green economy at the forefront of economic recovery efforts in the wake of Covid-19.

"Tying rock-bottom renewable energy costs with the political will to 'build back better' provides an unbeatable opportunity for the world to cut down on currently-projected levels of dangerous global warming," she said. "Although clearly a global shift, it is clear the message is getting through in the UK. The Prime Minister's commitment to offshore wind, if mirrored in other parts of the economy such as industry and keeping warm at home, put Britain in great stead get back on track to net zero. It could also cement its place as a global leader ahead of next year's climate conference, COP26."

The latest report from the IEA came as the International Monetary Fund (IMF) used its latest World Economic Outlook to warn that green stimulus packages to date had been "grossly insufficient".

The influential body warned that the window for delivering on the world's net zero emissions goals was "rapidly closing" and without urgent action the risk of triggering climatic "tipping points" was rapidly increasing. "The planet is on course to reach temperatures not seen in millions of years, with potentially catastrophic implications," the IMF warned.

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