The global community is on a concerning 2.5-degree Celsius warming trajectory, as revealed by Wood Mackenzie’s ‘Energy Transition Outlook’ report. This assessment marks a significant milestone in the ongoing journey towards a lower carbon future, indicating that if substantial transformative action is not taken promptly, the Paris Agreement’s crucial goal to limit the average temperature increase to below 1.5 degrees Celsius may be out of reach.
The report examines three distinct pathways for the energy and natural resources sector:
- Wood Mackenzie’s Base Case (2.5-Degrees): The current trajectory, showing the world’s progress toward decarbonization, albeit not fast enough.
- Country Pledges Scenario (2-Degrees): A scenario where countries make more ambitious commitments to limit warming to 2 degrees Celsius.
- Net Zero 2050 Scenario (1.5-Degrees): The most ambitious pathway, aligned with the Paris Agreement’s target to limit warming to 1.5 degrees Celsius.
- 1.5°C Is Still Possible: The report underscores that achieving the 1.5-degree target is still attainable, although with limited temperature overshoot. Success hinges on the actions taken within this decade.
- Scaling Up Low Carbon Power: To stay on track, low carbon power supply and infrastructure must grow at double the rate seen in the last decade. Delays in renewable projects due to limited grid interconnections pose a significant challenge.
- Investment Needs: A minimum of US$1.4 trillion annually (base case) must be invested in renewables, infrastructure, and energy transition technologies. To achieve net zero, this annual spend must increase to US$2.4 trillion.
- Continued Role for Oil & Gas: Oil and gas will continue to play a role during the transition, with an estimated annual spend of US$0.5 trillion in the base case and US$0.2 trillion in the net zero scenario.
- Electricity Dominance: Electricity is set to become the major energy market, driven by renewables as the primary power source. Power demand is expected to double every 10 years, supporting road transport electrification and green hydrogen production.
- Carbon Capture and Storage (CCUS) and Direct Air Capture (DAC): These technologies are vital for addressing hard-to-abate industries and restoring the carbon cycle over the long term.
- Supply Chain Challenges: Rapid development of copper, nickel, and lithium supplies is crucial to support renewables, electric vehicles (EVs), and transmission infrastructure. Lithium demand is projected to double by 2030 (base case).
- Hydrogen Revolution: Green hydrogen is a key element in achieving decarbonization goals. By 2050, the report envisions a significant shift from coal-based to hydrogen-based steelmaking, especially in the direct reduced iron (DRI)-electric arc furnace (EAF) route.
- Future of Electricity: Electricity is poised to dominate the energy landscape, overtaking oil and gas. The share of wind and solar energy is expected to soar, with grid connectivity being a critical factor in facilitating this growth.
- Carbon Pricing: To make low carbon supply cost-competitive, carbon pricing is necessary, with an estimated range of US$150 to US$200 per tonne by 2050.
- Oil & Gas Transition: While oil peaks over the next decade due to EV adoption, gas demand is expected to grow for a decade, driven by various applications including power and blue hydrogen production.
- Investment Needs: To achieve the 1.5-degree target, total investment in the energy sector must increase to approximately US$2.7 trillion annually, with a significant portion allocated to power and infrastructure.
This report emphasizes the urgent need for action, especially in the crucial decade ahead, to reshape the global energy landscape and achieve the ambitious climate goals set by the Paris Agreement.