by Eirik Wærness, Statoil Senior Vice President and Chief Economist
Global energy demand is rising – and global CO2 emissions are rising. The challenge ahead is to reconcile these two facts of life.
I believe it is possible to realise energy emission reductions consistent with the 2-degree target, but it will require immediate and coordinated global action. We should not underestimate the transformation that is needed.
The ratification of the Paris agreement under the UN Framework Convention on Climate Change signals a political willingness to ensure reductions in greenhouse gas emissions. However, reaching global climate goals requires unprecedented cooperation between countries on framework conditions, on technology development, and on income and burden-sharing. And it needs to start now.
Sustainability means not only lower greenhouse gas emissions, but also higher standards of living for billions of people in emerging economies. Greater levels of prosperity require, among other things, improved access to electricity and clean energy. Simultaneously pursuing climate targets and welfare targets could, unless efforts are carefully coordinated, lead to stalemate on both counts. In the developed regions of the world, the link between economic growth and energy demand growth appears to have been broken. Replicating this achievement on a global scale, and ensuring that remaining energy demand growth does not drive emission growth, are tremendous challenges.
Future outcomes for global energy demand and fuel mix therefore vary significantly, depending on many interacting and very uncertain factors. This is particularly true when we look beyond the near future towards 2050, as Statoil has done for the first time in its 2017 edition of Energy Perspectives. This report examines three significantly different scenarios. These rest on different assumptions covering:
- Regional and global economic growth
- Technological developments
- Market behaviour
- Conflict levels (and their implications) and
- Energy and climate policies
Since political and policy developments are unpredictable, the report refrains from ascribing probabilities to the individual outlooks. All the scenarios are possible. Together, Statoil aims for them to provide a realistic impression of the range of possible outcomes – and the implications for global energy development.
The central scenario, Reform, proceeds from current macroeconomic and energy market trends. In climate policy terms, it is based on the Nationally Determined Contributions (NDCs) in the Paris agreement, with a gradually less prevalent role for market-correcting policies as market-based solutions drive and deliver energy efficient and low-carbon technologies. Statoil’s Renewal scenario relates to creating the technically possible, but very challenging pathway to energy-related CO2 emissions consistent with the 2° target for global warming. It includes rapid and coordinated policy changes, accelerated energy efficiency improvements and large changes in the global energy mix. This would be driven by revolutionary development in electricity generation and parts of the transport sector. The Rivalry scenario depicts a polarized world, characterised by mounting distrust in conventional politics and policy-making, populism, protectionism and geopolitical conflict. In this scenario, the focus is on security of supply and other priorities, which overshadow global climate targets.
Average global economic growth in Statoil’s scenarios ranges from 1.9% to 2.7% per year, entailing that global GDP in 2050 will be between 2 and 2.7 times that of the level in 2014. Improvements in energy efficiency are larger than the progress that was achieved between 1990 and 2014 in all scenarios, but vary significantly. Total primary energy demand in 2050 is seen as 10% lower (Renewal), 20% higher (Reform) or 30% higher (Rivalry) than in 2014. The challenge in the Renewal scenario is particularly daunting: Global GDP is 170% higher in 2050 than today, but demand for energy is 10% lower. The future global energy mix also varies significantly:
- Oil demand in 2050 varies by almost 100%, between 63 and 123 million barrels per day, reflecting annual average growth rates between -1.1% and 0.8%, respectively. Gas demand in 2050 varies less, but ends up at between 2,900 and 4,550 billion cubic metres (bcm), compared to 3,385 bcm in 2014. Consequently, there is significant need for new investments in both oil and gas in all scenarios, since production from existing reserves cannot keep up with demand development.
- Coal demand is the most important key to global CO2 emission levels in our scenarios – average annual growth rates vary between -3.1% and 0.4%, resulting in coal demand in 2050 between 30% and 110% of the 2014 level.
- New renewable sources of electricity, in particular solar and wind, will grow significantly in importance, delivering between 8 and 18 times more electricity in 2050 than in 2014.
Global energy-related CO2 emissions in 2050 vary enormously, depending on scenario. They range between 13.5 and 39.5 billion tons, or 42-123% of the emission level in 2014.
It is my hope that Statoil’s Energy Perspectives 2017 contributes to a fact-based discussion of multiple possible futures.
Eirik Wærness has broad experience in government, academia and the private sector. In July 2016 he became a non-executive member of the Board of Norwegian Financial Supervisory Authority and a member of the World Economic Forum’s Global Council on the Future of Energy. Earlier, in 2010-2013, he was a member of the Executive Board of the Central Bank of Norway. He has also served in the Norwegian Ministry of Finance and has held positions in Total E&P Norway, Pöyry Management Consulting and other energy-related organizations.