Each year, the International Energy Agency spends months preparing an analysis of the global energy economy and where it's heading. The report takes into account economic, technological, and policy developments, and it tries to project the trends that will drive our energy use for decades. This year's report suggests that a combination of economics and policy will drive an explosion in renewables, making them the largest power source built between now and 2040.
The report, however, was written at what in retrospect is obviously an awkward time: after the Paris Agreement but prior to the election of Donald Trump. As such, it's not clear how relevant some of its assumptions are, and its authors are steadfastly refusing to comment on what changes the US election might bring about.
The IEA's work is based on a massive computer model that factors in most major aspects of the world's energy economy, from basic issues like price and supply to more complicated issues like the expected lifetime of certain infrastructure. The model allows its researchers to plug in different assumptions or constraints—like limiting atmospheric carbon levels to 450 parts-per-million—and see how the globe responds.
For this year's report, the IEA has created scenarios for an extension of current policies, one for the new post-Paris policies, one that limits warming to 2 degrees Celsius, and one that foresees deep decarbonization. These scenarios were run forward to 2040 to give us a glimpse into the future.
The big picture
But the report starts off with a look at the present, including the fact that carbon emissions have stayed flat for several years running, even as the global economy grew. The report suggests that we may have reached the point where a combination of efficiency and deployment of renewables has decoupled economic growth from carbon emissions. That had happened previously in a number of countries, but it wasn't clear when it would apply to the global economy.
Other good signs include the rapid electrification of transportation (there are now more than 1 million electric vehicles in use) and a drop in the subsidies given to fossil fuel use, which fell to $325 billion. Subsidies to renewables rose to $150 billion, helping to make them the single largest source of new generating capacity added last year. (The IEA expects that the incredible plunge in the price of wind and solar will mean that subsidies for renewables will never reach the amount presently given to fossil fuels.)
But all of that positive news is embedded in a recognition of a difficult reality: under current policies, demand will grow by 30 percent by 2040, and that means all current sources of power are likely to expand to meet it. The only exception is coal, where use stays flat. Of the $44 trillion in investments that will be made to ensure that the energy economy functions, 60 percent will go to fossil fuels by 2040.
That's largely because the EIA finds that most countries are already on track to meet what they've promised for Paris. For some countries, those promises are significant. China is shifting its economy away from heavy industry and toward services, allowing it to flatline its use of coal; demand is expected to drop by 15 percent by 2040. Almost all of its growth in the intervening years will be coming from other sources, primarily renewables and nuclear.
But for many other countries, the pledges are little more than business as usual. The growth of renewables is enough to ensure that, under post-Paris policies, 60 percent of the generating capacity through 2040 will be from those sources. But to keep within the 2 degrees Celsius target, 60 percent of the actual generation in 2040 has to come from renewables. "The power sector is largely decarbonized in this scenario," as the IEA puts it. Efficiency is also key, and it has a beneficial effect, offsetting any rise in consumer electricity prices that comes from radically realigning the energy economy.
Coal: Coal use drops and shifts dramatically. In developed economies, where demand is roughly flat, coal use plunges by roughly 50 percent, replaced largely by renewables. Many coal plants become stranded assets, still capable of producing electricity but simply no longer used. But this keeps the price of coal low enough that developing markets will find it an appealing way to rapidly electrify. As a result, the focus of coal use shifts to Asia and Africa.
Oil: While electric vehicles are rapidly becoming a significant part of the market, it will take decades for them to displace a large number of internal combustion vehicles. Meanwhile, the IEA doesn't see a good substitute for oil in three segments: freight, aviation, and as a chemical feedstock. Because of declining production in existing wells, we will need to replace an Iraq's worth of oil every two years, a constraint that can lead to price shocks. In fact, the IEA foresees one in the near future unless investment returns to development of new fields within the next year or so.
Natural gas: This is the one fossil energy source that shows growth under almost all scenarios and a 1.5 percent increase annually out to 2040 under current policies. To this point, natural gas has primarily been delivered by pipeline, which has resulted in a number of geographically distinct markets. But the IEA expects that the growth of liquefaction and shipping capacity will bring about a global market for natural gas within this time period.
Nuclear: Here, social factors are the dominant driver of adoption. That likely means decreased use in Europe, stasis in the US, and rapid growth in China. It's not generally seen as a viable solution for developing economies.
Renewables: The cost of photovoltaics is expected to drop by anywhere from 40 to 70 percent over this period, and wind prices will edge lower, too. By 2030, both of these are expected to be cost-competitive without subsidies in India and China. The limits to growth of renewables are primarily set by two factors: how quickly we decide to decarbonize electricity and how much overcapacity we're willing to build in order to ensure sufficient power on low-generation days. If extensive decarbonization becomes the dominant policy choice, then renewable electricity becomes even more important, as things like heating and transportation will be shifted to electricity.
Water: The IEA is acknowledging that you can no longer talk about energy without considering water. Right now, four percent of global electricity consumption is spent on supplying water or processing wastewater. Meanwhile, the energy sector is responsible for 10 percent of the withdrawals of water made by humanity. As water supplies become increasingly constrained, regional differences will become dramatic. By 2040, the IEA predicts, over 15 percent of the electricity consumed in the Mideast will be used for the delivery of water.
What the IEA won’t tell you
During the press conference in which the analysis was released to reporters, several asked questions regarding how matters will change if President-elect Trump keeps his campaign promises. While the report's authors refused to speculate, there are a number of things that are worth noting.
The present energy economy in the US is driven by the low price of natural gas and renewables, and Trump is unlikely to be able to change that. The subsidies that are currently helping renewables were popular enough in Congress to be one of the few things passed during the Obama administration, and the trajectory of renewable prices is such that the subsidies won't be needed for cost competitiveness for much longer. While Trump may revoke some of the rules that make coal less competitive, it's not clear that businesses will feel confident enough that these changes will survive long enough to make something like a coal plant, with a lifespan that runs decades, a reasonable risk.
The reality is also that the US may be a symbolic leader on the climate, but it's not a leader in most other ways. Energy efficiency in Europe and Japan is far superior; Europe has also helped pioneer wind, and it is now driving offshore wind tech. The rapid drop in photovoltaic prices has largely been the product of China's commitment to renewable energy.
A fully committed US could be invaluable in addressing climate change. It's not clear, however, whether it's essential.