Faster electrification can slash energy import bills by $US400 billion, cut global oil use by 18 million barrels a day

As the cost of diesel fuel in Australia hovers close to $3 a litre, and the federal Coalition pledges to shred the few policies designed to reduce Australia’s dependence on imported oil, a major new global report has laid bare the economic and energy security wins that can come with higher levels of electrification.

The special report from the International Energy Agency (IEA) was released overnight ahead of climate talks later today in New York, where countries will consider the adoption of a global electrification target of 35 per cent by 2035.

The IEA report finds that based on technologies available today, and energy prices at levels seen before the current supply shock, electricity could cost-effectively meet 33 per cent of the world’s final energy consumption by 2035, up from 23 per cent today.

This, says the IEA, puts the 35 per cent goal that is under discussion as part of UN COP negotiations within striking distance. And for as long as energy prices remain at their current levels, amid the Strait of Hormuz crisis, it makes it cost effective to electrify even more of the world’s energy usage.

Electrification is a hot topic in Australia at the moment, as more and more segments of society “vote with their feet” – as climate scientist and CEO of Climate Analytics, Bill Hare, put it in a recent webinar – on the clear benefits of swapping out fossil fuels and going electric.

“In the real world, I guess, in the real economy, people are voting with their feet right now,” Hare told a press briefing on a Climate Analytics report setting out a 1.5°C-aligned pathway to wean Australia from fossil fuels.

“They’re getting behind the battery program of the [federal] government, which is great. They have record installations of solar panels on people’s roofs. People are rushing into electric vehicles in Australia, now.

“We see some mining companies, particularly Fortescue, moving towards real zero activities, electrifying everything, and some transport companies are now moving on introducing fleets of electric semi-trailers.

“These reveal the fact that individual actors in the economy are seeing financial benefits,” Hare said.” The challenge for government is to make sure that policy settings enable consumers to see the benefits.”

But in Australia, the challenge is that not all political parties are actually on board with a push to electrification, let alone inclined to put in place the right settings for everyone to benefit from it.

The federal Coalition, for instance, has just released an eight-point plan to ditch the Safeguard Mechanism – the federal scheme to reduce carbon emissions by big industrial polluters – as well as the Vehicle Efficiency Standard Act of 2024 that supports the shift electric vehicles.

In Victoria, the state Coalition opposition has pledged to bring an end to what it describes as the current Labor government’s “ideological war on gas,” which includes the nation-leading Gas Substitution Roadmap that is legislating a staged exit from residential gas use in favour of electrification.

Hence the value of reports like this from the IEA – prepared at the request of Türkiye, the COP31 President, and Australia, the COP31 President of Negotiations – that assess the implications of faster electrification for energy security and climate goals, and set out the broader benefits and trade-offs.

As Australia’s energy minister Chris Bowen writes in a foreword to the report, “electrification offers many benefits at once: it strengthens energy security, supports economic development, improves affordability and lowers emissions.”

But for those who prefer Very Big Round Numbers to support their policy positions, the report has some of those, too.

“In a scenario in which fuel-importing countries around the world speed up the electrification of their economies considerably, their energy import bills could fall by more than $US400 billion by 2035 compared with 2025 levels,” it finds.

“By then, faster electrification could mean the world is using 18 million fewer barrels of oil per day than it would have done otherwise, mainly the result of a rapid uptake of electric vehicles in this scenario.”

For those concerned with climate and emissions reduction – #notallpoliticians – electrification also offers a major opportunity to decarbonise quickly and cheaply across multiple sectors of the economy.

In the IEA’s faster electrification scenario, carbon emissions from transport, buildings and industry fall by 40 per cent by 2035, a rate of decline which is aligned with international climate goals.

“This decline would be sufficient to put total energy-related CO2 emissions on a downward trajectory, regardless of the electricity generation mix,” the report says.

“A rapid expansion of domestically based, low-emissions power supply would further amplify the energy security and emissions benefits. Electrification supports the international goals of doubling the rate of energy efficiency improvements and tripling the total capacity of renewables.”

As Bowen puts it, “the shift to an electrified world is well underway. The challenge is deployment, at speed and scale.”

To this end, the IEA’s new sector-by-sector analysis shows the greatest potential for ramping up electrification lies in the transport sector, underpinned by a booming electric vehicle market, which in turn is underpinned by a 90 per cent reduction in lithium-ion battery prices since 2010.

“Our analysis finds that around half of oil-based road transport demand could be electrified competitively today. If battery prices continue to move down the cost curve as in recent years, this would rise to over four-fifths,” the report says.

Buildings also offer major potential for electrification, with the analysis estimating that half of global space heating demand could be electrified competitively.

In industry, the key sectors with near-term electrification potential are textiles, food processing, pulp and paper, and some chemicals production. IEA analysis finds that around 40 per cent of energy consumption in low- and medium-temperature applications in industry can be electrified cost-effectively.

“This Special Report on Electrification arrives at a critical moment,” says Bowen in his foreword.

“The global energy shock has prompted many countries to seek ways to strengthen energy security, while still delivering affordable and reliable energy.

“The analysis by the IEA shows that electrification acts on each of these challenges, while also supporting economic growth and lowering emissions.

“Electrified economies, powered with clean energy, and backed by modern grids and storage, are an enduring answer. A significant finding of the report is that we already have the means to deliver an electrified world today.

“For our homes, businesses and communities, substantial cost-effective electrification potential can be achieved with technologies that are already commercial.”

Anna Freeman, global co-ordinator of the Electrify Now campaign, and head of electrification at Australia’s Energy Efficiency Council says the placement of electrification at the centre of the global climate action agenda is a welcome move.

“It’s great that the role of electrification in the energy transition now has the policy attention it deserves,” Freeman said on Wednesday.

“In addition to doubling energy efficiency and tripling renewable energy, the science tells us we have to quadruple the rate of electrification over the next decade. It’s a large and urgent task – made all the more urgent by the latest in a long line of energy crises.” 

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