New analysis from Norwegian based energy advisory firm DNV GL shows Australia is well placed to participate in a substantial transformation of the global energy system, but warns the world is rapidly running out of time to limit average global warming to no more than 1.5°C.
The head of DNV GL’s energy group, Ditlev Engel, presented the firm’s assessment of what the energy transition means for the major OECD economies in the Pacific region, including Australia, at the All Energy conference in Melbourne this week, forming part of the latest update to the firm’s Energy Transition Outlook.
The assessment spells out the enormity of the transformation underway in the global energy system, although it is not confident it will be rapid enough to prevent dangerous levels of global warming.
DNV says that while the transition underway in the energy sector is happening at a rapid pace, the current level of investment would see the carbon budget needed to limit global warming to no more than 1.5°C exhausted as early as 2028.
Scientific predictions of the impacts of global warming show devastating impacts of global warming of as little as 2°C above pre-industrial levels, leading governments to set an aspiration of limiting warming to 1.5°C under the Paris Agreement.
“On the current path, CO2 emissions will peak in 2025 and will be about half the current level by mid-century, indicating a warming of 2.4°C by the end of the century,” DNV says.
The DNV analysis shows that rapid increases in low cost and low emission electricity generation capacity will be necessary in coming decades, not just to replace fossil fuel generators exiting the system, but also to meet surging electricity demand driven by economic growth and increased electrification across the economy.
DNV GL sees energy investment over the next couple of decades continues to be dominated by lower cost solar and wind generation, and the energy system being significantly reshaped the electrification of almost all passenger transport.
“The share of electricity in the [Pacific Region’s] final energy demand will continue to increase, from 24% in 2017 to 50% in 2050, the second highest of all regions after Greater China,” DNV says.
DNV GL sees ongoing policy turmoil in Australia, and a Japanese economy still working through a challenges in its energy market following the Fukushima nuclear incident, as challenges facing the Pacific region’s largest energy users. It singled out New Zealand as a bright spot, with New Zealand serving as a rare example of a country whose government is matching strong climate ambition with effective policy.
The analysis predicts that the Pacific region will emerge as a leader in the use and production of hydrogen as an alternative fuel, undergoing astronomical growth through to 2050. DNV GL sees the initial growth in hydrogen production being driven by steam methane reforming, primarily produced using Australian coal, before the emergence of renewable hydrogen using electrolysis becoming the majority supply by 2050.
DNV predicts that electric vehicles would dominate the passenger vehicle market from the mid-2030s onwards, but with some portions of the commercial transport sector harder to shift away from liquid fuels.
From 2040, DNV predicts an almost complete shift of the small vehicle market (motorcycles) by 2040, and electric vehicles will become the largest portion of the passenger car market from 2040, as electric vehicles become an increasingly more affordable option for consumers, compared to transitional internal combustion engines.
The combined effects of increased renewables and electrification on transport and industry will lead to demand for fossil fuel sources peaking globally within the next decade, largely being displaced by solar and wind as the primary source of new electricity generation capacity.
Significantly, growth in the adoption of electric vehicles will see the peak in the consumption of oil, particularly within the Pacific region, where oil consumption will rapidly decline from the 2020s onwards.
“Electrification of the transport sector will be the strongest driver for reducing oil consumption over the forecast period. Coal, the region’s second largest primary energy source, will continue to decline rapidly from the 2020s due to its replacement in the manufacturing sector by natural gas and in the power sector by natural gas and renewables,” DNV GL said in its report.
The analysis found that the transition is largely being driven on the basis of economics, and an assessment of the lowest cost sources of energy going forward. DNV GL found that the overall impacts on energy costs will be relatively low, with increased investments in enabling infrastructure, including new transmission networks and vehicle charging systems, being offset by the lower costs of energy sourced from wind and solar.