Peak emissions are here but decline needs to be much faster: new BNEF report

A new report from BloombergNEF (BNEF), the ‘New Energy Outlook’, (NEO) finds that global emissions likely peaked in 2019, but without strong action will decline so slowly that dangerous levels of emissions lock in 3.3 degrees of warming by the end of the century.

The report serves as a valuable addition to a long run of new investigations that each point to a single, valuable message: there has been far more progress than expected, but three or more times this effort is needed to put us on track for a safer climate, which entails urgent and immediate action.

What needs to be done to push the world in the right direction

An alternative ‘climate scenario’, in which policy, business and consumer actions reduce emissions 6% year on year to limit warming to below 2 degrees. Renewable deployment is accelerated. The NEO’s climate scenario opts for a hydrogen-heavy pathway, something that BloombergNEF’s Seb Henbest stressed in a press briefing is “not a prediction”, but more of an interesting potential to examine.

The NEO finds that if we were to rely on the economics of renewables and storage alone, emissions fall at only 0.7% per year (this needs to be 10% year-on-year to hit 2C, and 10% to hit 1.5C). It’s a commonly-repeated message, but BNEF are keen to repeat it again: even if we hit peak emissions soon, the rate of decline creates massive differences in the outcome for human safety on Earth. This is where the debate is shifting: away from the old visions of perpetual fossil fuel growth, and a new debate about how fast we ditch them.

“We are certainly not on track for five degrees plus, which was a concern for a while”, said Henbest. “But there’s a long way before we get to safe climate levels”. How do we get there? The NEO highlights three courses of action: accelerate renewable deployment, empower consumers to adopt change, and develop a zero carbon molecule for the economy (namely, hydrogen).

As a contrast to many other visions of the future, the NEO explores the nature of energy losses in great detail. As is visualised below, the story of fossil fuels is, at its heart, one of massive waste and inefficiency, with incredible quantities of energy lost before a sliver ends up propelling a car forward, or spinning an electricity-generating turbine.

Renewables and electric motors are, by contrast, stunningly efficient, which means the act of converting an economy to renewables and electricity massively reduces the quantity of energy consumed even without any actual reductions in demand. “In power generation, BNEF estimates that coal is also one of the most inefficient ways to make electricity since 65% of energy is lost in the process of burning the fuel. The energy lost in generating electricity from wind is almost zero”, wrote Bloomberg.

This is split out in to three categories: primary energy, final energy and useful energy, with losses from fossil fuels increasing at each step before it’s used by, for instance, someone pushing an accelerator on their car. “These three lenses through which we can look at the energy economy matter, because they can change the storytelling”, says Henbest. Primary energy has been used, very frequently, as a way of downplaying the role of renewables, because fossil fuel’s figures are bloated by all of the excess energy that goes to waste, along with the small fraction that’s used at the end of the chain of events.

It’s a complicated nuance, but an extremely important one when it comes to forecasting the energy future, because this change is so fundamental it means reconfiguring how the measurement of energy occurs to account for huge reductions in wastage and inefficiency from fossil fuels.

The NEO predicts these new, efficient forms of energy will come to dominate the grid. In their ‘economics only’ scenario, wind and solar hit 56% of electricity by 2050,with 76% zero carbon in total and 24% fossil fuels remaining. Like so many other forecasts, wind and solar grow rapidly, beyond the rates we’ve seen to date, to dominate most energy systems around the world (though Henbest notes economic limits of around 70 to 80% for wind and solar, on average).

For two thirds of the world’s population, solar PV is now the cheapest form of electricity. The cost declines in coming years are set to be so significant that building a new renewable asset will be cheaper than running an existing fossil fuel one within the next five years. That alone is a seismic, monumental shift in electricity dynamics, and it’s not even the biggest factor. Even without policy interventions, massive shifts in energy will accumulate, interact, shift and twist on a significant global scale.

As cheaper and better renewables enter the grid, they begin competing against each other and so the cost reductions begin to get smaller with each new megawatt. Storage and diversification (particularly towards wind) can ease this ‘saturation point’ effect. Fossil gas serves a peaking role, and the remaining scraps are picked up by fossil fuel power stations. “Renewables shape the residual space that conventional plants have to to play in”, says Henbest. This depends heavily on grid upgrades, with the total quantity invested in altering grids roughly the same as that invested in building new renewables. Even in this ‘economics only’ scenario, there is massive and rapid change to grids around the world. But this alone is insufficient to keep the planet safe, and the NEO’s ‘Climate Scenario’ explores the better-case alternative in great detail.

The gradient of fossil fuel decline determines our fate

The biggest lever that will decide the future of demand for oil is the electrification of road transport, and BNEF predicts by 2050 that EVs will make up 73% of new vehicle sales, and comprise 54% of the cars on the road worldwide. But even if cars change, “we see growth in oil demand for the chemicals and plastics sector along with the aviation sector offsetting some of the gains in lower carbon intensity from road transport”, says Henbest. That’s a worrying potential, and highlights the need for significant policy intervention.

The outlook on gas is similarly dicey. “In the long run, the conclusion we draw is that is slows the energy transition in somewhere like the United States”, says Henbest. Much of the debate around gas revolves around power, but energy for building (heating and cooking) become major drivers in the destiny of fossil gas, according to the NEO report. Converting homes to electric alternatives is still problematically expensive, and cost declines are slow, meaning gas remains the default. For power, “gas capacity is not running nearly as much as the makers of that technology would expect, or as the owners would like”.

The NEO also finds that – counter-intuitively – high gas prices drive “coal to renewables” switching, as economies leap-frog over gas. This results in a far lower emissions scenario, and it makes sense when you think about it: sustaining fossil fuels in the system means higher emissions. Gas is a fossil fuel, and therefore its presence increases emissions. “Cheap gas looks great in the near term, but in the long run actually slows the energy transition”, says Henbest.

Electrification is quickly shaping us as the next big global climate battleground. In the NEO’s ‘Climate scenario’, electrification creates a 100,000 terawatt hour electricity economy by 2050. Investment in new clean energy technologies alongside a range of indirect electrification pathways (such as electricity used to produce hydrogen, which is then used in transport and industry) results in large increases in power generation, though of course the absence of fossil fuel inefficiencies are still a net reduction in total energy wastage. 

While BNEF highlights a lot of momentum already baked in to the global energy system based purely on economics alone, it is pointedly insufficient to hit climate goals. Strong, urgent policy actions, and large shifts from businesses and individuals must all occur in perfect unison and at massive speed to achieve the changes highlighted in BNEF’s ‘climate scenario’ above. And while none of these future-focused reports will end up being ‘correct’ – the future will always be messier than we can model – the core message remains stark and inarguable. We are not doing anywhere near as much as we need to be, to get the job done – but if we did, the immediate rewards to people, to economies and to human welfare would be significant.