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Reaching net-zero carbon

Are renewables up to the task set by the Paris Agreement?

When 195 nations approved the Paris Agreement in December 2015, they were setting a course for a long-term transformation of the world's energy systems, with the stated goal of achieving net-zero emissions by the second half of this century.

Underpinning their confidence in the aims of the Agreement was the explosive growth of zero-carbon sources of energy, especially the spread of renewable power to most corners of the global economy.

Indeed, energy headlines have been full of references to the shrinking costs and increasing competitiveness of solar and wind power; and recent evidence that in some parts of the world renewable electricity is now competitive with fossil fuel-fired power on a subsidy-free basis.

It'll need to be. Global energy consumption reached more than 13bn tonnes of oil equivalent in 2015—but renewables (excluding hydro) accounted for just 2.8% of the total, according to BP's Statistical Review of World Energy. While that share increased by almost 15% from a year earlier, it's not yet on pace to reach the goals set out in the Paris Agreement.

"We do see pretty strong growth in renewables, at about 6% a year for the next 20 years, but it's from a very low base," Paul McConnell, research director at Wood Mackenzie, a consultancy, said in an interview. "Our core view does see a big increase for renewables in power, but it's not going to get us to the point where the world meets its Paris obligations, especially now that it seems the US [may] walk away from the deal."

Yet the trend is unmistakable. In the 20 years to 2014, total solar-and wind-energy consumption grew by nearly a hundredfold to more than 700 terawatt-hours, or 3% of total generation, according to BP. Adding hydro and other renewable sources, total zero-carbon electricity consumption reached 27% of all electricity generated in 2015.

This growth has long-term implications for incumbent sources of power, namely fossil fuels. Over the past 10 years, the main victim of the surge in renewables has been the black stuff: growth in consumption of coal has slowed markedly from the rates seen in the years to 2007. Total use of the fuel fell in 2009, 2010 and 2015.

Coal will remain the largest source of electricity globally until at least 2040, the International Energy Agency (IEA) forecasts. But it will hang on mainly in emerging economies, which will opt for lower-cost generation. By contrast, the agency forecasts, coal demand will decline in the EU and US by at least 60% and 40%, respectively, by 2040.

"In the mid-2020s, in gas-importing countries in Asia, new gas plants would be a cheaper option than new coal plants for baseload generation only if coal prices were $150 a tonne (double the anticipated 2025 price)," the IEA said in its 2016 World Energy Outlook.

Green shift

But as public policy shifts towards more support for non-emitting energy sources and energy efficiency in all sectors of the economy, and as new technologies lower the cost of deploying these sources, the long-term growth of all traditional fuels will be adversely impacted, most analysts agree.

"If we were to see a big breakthrough in energy-storage technology or something like that, then I would have to revise my view, because that would enable a lot of the barriers to higher uptake of renewables to be eroded," Wood Mackenzie's McConnell says. "Similarly, if you were going to see a much bigger uptake of electric vehicles (EVs), that could potentially have much bigger impacts on oil demand than we currently forecast."

Even in the absence of a breakthrough in storage technology, total investment in renewable energy reached $313bn in 2015, while upstream oil and gas investment dropped 25% to $583bn. The IEA notes that while spending on renewables was flat between 2011 and 2015, the sector generated 33% more power due to improved deployment of wind and solar installations.

McConnell says that for renewables to replace more fossil-fired generation, considerable infrastructure spending will be needed. "Even to get to 25% of global power output you need a very significant level of investment," McConnell says. "You need a lot of changes in market design in order to compensate legacy generators for the way they access the grid. Grid operators need to be compensated. A lot of these problems we are already encountering in Europe where the penetration is much smaller.

"We're already coming up against barriers to renewables growth. These problems have to be solved; even to get to 25% you're looking at quite a significant upheaval in the way power is delivered."

Critically, the growth in renewable energy has yet to make inroads into demand for oil as a transport fuel. Almost two-thirds of every barrel of crude oil is transformed into either gasoline, diesel, fuel oil or jet fuel, and the rapid growth of demand for transportation in developing economies shows little sign of slowing.

As low-carbon alternatives penetrate further into the global economy, the IEA sees the share that transportation and petrochemicals take of each barrel of oil increasing to around three quarters by 2040.

The global stock of EVs stands for now at around 1.3m, according to the IEA. But under its central New Policies scenario, the agency forecasts the number will increase to over 30m by 2025 and more than 150m by 2040. This would displace 1.3m barrels a day of oil.

Wood Mackenzie's base case forecast sees EVs representing more than 10m units, or 12% of all US sales, by 2035, which would trim American gasoline demand from just over 9m b/d to around 6.5m b/d by 2035. In its most aggressive scenario, the American EV stock would reach more than 100m, or 85% of sales, cutting gasoline demand to less than 5m b/d.

Nonetheless, the long-term demand outlook for fuels means oil companies will need to continue developing and exploiting new reserves of oil and gas to replace ageing fields deep into the 21st century, the agency concludes.

At a political level, at least, the direction of travel has been set: zero-carbon energy is the desired outcome. But if the forecasts are correct, it's clear that oil and gas won't go away anytime soon. Gas's role as a bridging fuel to the low-carbon future seems assured, while oil's role in transport on land, sea and air is underpinned by challenges in infrastructure and cost.

This article is part of a report series on Renewables. Next article: Prudence in a changing climate

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