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How to decarbonise by 2050

Improved technologies, incubated by leading energy companies and new ventures, will be needed to realise decarbonised vision

Decarbonisation is challenging because of the energy system’s sheer size; 63,000TWh of energy was consumed globally in 2018. To put this in context, this is equivalent to a kitchen toaster running 24 hours per day, 365 days per year, for every one of the world’s 7.7bn inhabitants.

Most energy consumption is invisible to consumers, but it is nevertheless crucial to their lifestyles. Over half of all the world’s CO2 emissions stem from agriculture, metals, materials, fertilizers, manufacturing and distribution: i.e. the inputs into the products we consume and the buildings in which we consume them.

Energy consumption is also woefully unequal. The wealthiest 1.3bn in the developed world make up an enormous c.60pc of global consumption. Yet 1bn lack access to electricity and 2bn lack modern cooking fuels. By 2050, emerging market populations are set to rise by 25pc while their per capita energy use is to rise 80pc, or c.30pc of the developed world’s per capita level.

Global energy demand is likely to increase to 120,000TWh/yr, doubling CO2 emissions to c.80bn t/yr, all else being equal (see Figure 1). The new goal of the energy industry should therefore be to meet the world’s needs while decarbonising the energy system.

The divestment movement is counterproductive to this decarbonisation goal. It aims to restrict investment, until global fossil fuel supply falls. When supplies fall, prices rise and thereby price out potential consumers and eliminate their demand. But inflicting this outcome on emerging market consumers could have truly terrible consequences.

The new goal of the energy industry should be to meet the world’s needs while decarbonising the energy system

Achieving the energy transition is likely to require more investment than the $2tn per year the industry spends, not less. But the benefits of investment can be seen in, for example, in the move to renewable energy sources; the incredible c.90pc deflation in renewable energy prices over the past decade—towards levellised costs of 4-6c/KWh—are some of the lowest-cost electricity in the world.

The challenge for renewables is scale. Last year, the world spent $300bn on wind and solar, which thus added 270TWh of new energy supplies. At this pace, it will take c.180 years for renewables to scale up to 50pc of the world’s energy mix. Our own forecasts assume renewable investments double, but wind and solar still only reach 15pc of the 2050 energy mix (see Figure 2). Renewables also cannot meet all types of demand, such as planes, ships, trucks, materials or industrial heating. Therefore, if we are to achieve decarbonisation, we must look more broadly.

Gas should emerge as the leading fossil fuel. Generating 1MWh of power from coal emits 0.85 t of CO2, while the same MWh from gas emits just 0.35 t of CO2. Hence the ascent of gas shown in Figure 2 yields 20pc lower CO2 emissions in 2050 than if today’s market shares of coal, oil and gas are preserved.
Gas could further extend its lead with new technologies that decarbonise gas-fired power-generation. For example, we are most excited by oxy-combustion using the Allam cycle, which is reaching technical maturity. This zero-carbon gas power technology should cost less than constructing a new combined cycle gas turbine.

63,000TWh Global energy consumption

There is also an opportunity to save c.25pc of the oil industry’s 2bn t annual CO2 emissions. This is achieved by reallocating 10mn bl/d of production away from the most CO2-intensive resources toward lower CO2 oil (see Figure 3).

US shale could be a large part of the solution, emerging as the world’s lowest CO2 resource type. This is helped by the rapid acceleration of research into enhanced oil recovery using CO2, which doubled year-on-year in 2019. The technique could double well productivity, with a breakeven of $40/bl, sequestering 20-30,000 t of CO2 per well.

If every industry could achieve a similar 10-20pc reduction in their CO2 emissions—as we have shown to be more than achievable in the oil industry—then this would save another c.15pc of global emissions, as illustrated by the dark blue bar in Figure 1. We are screening many examples, including agriculture, building materials, e-commerce, plastics, manufacturing, industrial robotics, shipping and textiles.

Better energy technologies will be required to deliver the rest of the decarbonisation. Hence the mission statement for Thunder Said Energy is to identify economic opportunities in energy technology, which can also drive the energy transition. This year, we have screened over 50 such themes.

Discussing each one is beyond the scope of this article. However, our research illustrates dozens of pathways to economising energy demand, decarbonising fossil fuels and offsetting the remainder of the industry’s CO2. This covers everything from drone delivery, to reforestation, to breakthroughs in CO2 separation and usage.

Most challenging today is for investors to back energy technologies. It is the most important component of achieving energy transition. Yet investing in technology companies requires technical expertise and partnership. Moreover, these companies are at an early stage, usually unlisted and higher-risk than established businesses.

Energy majors have already stepped up their activities to support the transition. 2019 is on course to be a record year, with 40 new investments. 65pc are in new energy technologies. One model that could accelerate the progress is for leading energy majors to allow public market investors to coinvest in their venture funds, or to launch more dedicated funds. If the industry de-risks next-generation energy technologies, it can genuinely decarbonise.

Rob West, CFA, Thunder Said Energy

Keep up-to-date with how the predictions in Outlook 2020 are playing out and get a first look at the themes that will shape Outlook 2021, as well as with relevant events such as the Outlook launch party and publishing schedules, by subscribing to Petroleum Economist’s bi-monthly Outlook newsletter. http://go.pardot.com/l/45692/2020-01-17/89x558

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