The World is Heading for 3 Degrees of Warming as Political Headwinds Slow the Energy Transition

Article content

Article content

The world is heading for 3 degrees of warming. as political headwinds slow the energy transition

The WoodMac report examines the impact of a delayed energy transition against a backdrop of political uncertainty, inflation and elections around the world

LONDON, May 2, 2024 – Delaying the energy transition by five years could see average global temperatures rise to 3 degrees Celsius above pre-industrial levels, according to Wood Mackenzie’s latest analysis: “A Delayed Energy Transition.”

Article content

Wood Mackenzie’s delayed energy transition scenario, which analyzed the impact of a five-year delay on global decarbonization efforts, expects average annual spending to fall to $1.7 trillion. This is 55% less than Wood Mackenzie’s Net Zero 2050 scenario*, which sets out what is needed to achieve the goals of the Paris Agreement.

In terms of total investment, a delayed transition could cost up to $48 trillion, a significant drop from Wood Mackenzie’s net zero scenario, which estimates a total of $75 trillion. CAPEX in the oil and gas sector rises to 31% as spending in the energy sector is expected to remain at current levels of 60% in a delayed transition. In the net zero scenario, spending could fall below 10% if the energy sector accounts for 80% of total spending.

In the metals and mining sector, capital expenditure is the most stable, at around 6% of the total in all scenarios. In contrast, despite their key role in the overall energy transition, investment in hydrogen and carbon capture, utilization and storage (CCUS) falls to 2%, compared to 8% in Wood Mackenzie’s net zero scenario.

Article content

Article content

“With half the world’s population set to vote in 2024, political realities and climate skepticism in major emitting countries such as the US and Europe could reduce support for the transition as voters seek economic security and price stability,” Prakash said Sharma, vice president of scenarios and technologies at Wood Mackenzie and author of the report.

“The global stocktake at COP28 in December 2023 also confirmed that no major country was on track to meet the Paris commitments and that strong policy action and capital investment were needed to accelerate the transition.” Indeed, Europe and “The UK has already postponed its 2030 climate targets and other countries could follow suit,” added Sharma.

According to the scenario, emissions are expected to peak in 2032 and the remaining carbon budget for a 1.5°C world will be depleted by 2027, further weakening countries’ ability to meet the Paris Agreement targets by 2050 on time .

Renewable energy-based electrification appears to be becoming increasingly difficult in the delayed Wood Mackenzie scenario. In the longer term, solar and wind power markets dominate energy markets, but short-term gains are slowed due to transmission bottlenecks. The unbridled heat supply provides a large part of the flexible generation to balance the power grids.

Article content

Higher interest rates and supply chain bottlenecks have increased the cost of renewable energy by 10% to 20% in recent years. High renewable energy costs will further delay the cost decline of low-carbon hydrogen, reducing demand to 100 million tonnes (Mt) in 2050, almost 50% less than the baseline scenario.

A slower transition means carbon capture and removal technologies would have to play a critical role in restoring carbon balance and achieving long-term climate goals. CCUS usage reaches 225 Mt by 2030 under the delayed Wood Mackenzie transition and continues to rise as policy incentives expand and storage infrastructure is built.

In the delayed transition scenario, oil demand peaks at 114 million barrels per day (mb/d) in 2033, almost 6 mb/d higher than the baseline scenario, as electric vehicle (EV) adoption slows outside China. Gas demand peaks in 2045 at 4,536 billion cubic meters of natural gas (bcm), almost 100 billion cubic meters more than in the baseline scenario. Meanwhile, coal demand is slowly falling and remains 3% higher this decade than the baseline.

“Lower renewable energy and hydrogen production creates scope for additional growth in gas demand, but the resilience of coal limits the upside. “Commodity markets look tight and volatile for longer if investment in supply does not pick up,” said Sharma.

Article content

END

Editor’s Notes:

This report is part of Wood Mackenzie’s Energy Transition Outlook series.

Wood Mackenzie released its most recent base case outlook in September 2023. Since then, the risk of delays in the transition to low-carbon energy has increased, particularly due to policy changes in several major economies. For this reason, we publish here a delayed energy transition scenario that examines the impact of a five-year delay in global decarbonization efforts.

Scenario definitions*:

• Base case – Wood Mackenzie’s base case for all natural resources and technology businesses – our core and most likely outcome.
• Scenario with country commitments – Wood Mackenzie’s scenario of how country commitments could be implemented in the future. The 2˚C trajectory corresponds to the upper temperature limit of the Paris Agreement.
• Net zero 2050 scenario – Wood Mackenzie’s scenario of how a 1.5˚C world could develop in the next 30 years. CO2 emissions are in line with the most ambitious target of the 2015 Paris Agreement.
• Scenario of a delayed energy transition – the impact of a five-year delay in global decarbonization efforts modeled in the baseline scenario.

Article content

Relevant news and comments

For further information please contact:

Vivien Lebbon, T: +44 330 174 7486, E: [email protected]

About Wood Mackenzie
Wood Mackenzie is the global renewables, energy and natural resources insights company. Powered by data. Powered by people. Amid an energy revolution, companies and governments need reliable and actionable insights to drive the transition to a sustainable future. That’s why we cover the entire supply chain with unparalleled breadth and depth, backed by over 50 years of natural resources experience. Today, our team of over 2,000 experts operates in 30 locations worldwide, inspiring customers’ decisions through real-time analysis, advice, events and thought leadership. Together, we provide them with the insights they need to separate risk from opportunity and make bold decisions when it matters most. For more information visit woodmac.com.

Attachment

• Delayed energy transition – Wood Mackenzie

Article content