PERSPECTIVES FOR THE ENERGY TRANSITION
Investment Needs for a Low-Carbon Energy System
A recent study commissioned by the German G20 presidency to the IEA and IRENA sees energy efficiency as one main element for a Global energy transition. Only decreasing 2050 primary energy supply by 27% through energy efficiency allows meeting 65% of this demand with renewable energy.
Total investment of around 145 bn US$ in energy supply would only slightly need to rise (by 1 bn/year) over today’s level to achieve climate targets, while there is significant additional investment needed in end-use sectors. However, twice to 6 times this amount would be saved by positive environmental and health impacts. Additional GDP effects will be around 0.7–1.7%, and additional human welfare effects are not even included therein. Around 6 mn additional jobs could be expected.
Scope of the study (from Executive Summary)
Investment is the lifeblood of the global energy system. Individual decisions about how to direct capital to various energy projects – related to the collection, conversion, transport and consumption of energy resources – combine to shape global patterns of energy use and related emissions for decades to come. Government energy and climate policies seek to influence the scale and nature of investments across the economy, and long-term climate goals depend on their success. Understanding the energy investment landscape today and how it can evolve to meet decarbonisation goals are central elements of the energy transition. Around two-thirds of global greenhouse gas (GHG) emissions stem from energy production and use, which puts the energy sector at the core of efforts to combat climate change.
Against this backdrop, the German government has requested the International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA) to shed light on the essential elements of an energy sector transition that would be consistent with limiting the rise in global temperature to well below two degrees Celisius (2°C), as set out in the Paris Agreement. The overarching objective of this study is to analyse the scale and scope of investments in low-carbon technologies in power generation, transport, buildings and industry (including heating and cooling) that are needed to facilitate such a transition in a cost-effective manner, while also working towards other policy goals. The findings of this report will inform G20 work on energy and climate in the context of the 2017 German G20 presidency.
The analyses in this report are framed by several key questions which include:
- How can the energy sector achieve a transition to a decarbonised, reliable and secure energy sector at reasonable costs?
- What are the investment needs associated with the energy sector transition and how do investment patterns need to change to reach a low-carbon energy system?
- What are the co-benefits for other energy policy objectives that could result from an energy sector transformation?
- Assuming a timely and effective low-carbon energy sector transition, what is the outlook for stranded assets? What is the impact for stranded assets if action is delayed and the transition is sharper?
- How does the trend of declining costs for renewables and other low-carbon energy technologies, as well as acceleration of efficiency gains, support the decarbonisation? How can policy accelerate this development?
- What are the roles of carbon pricing and the phase-out of fossil fuel subsidies in ensuring a cost-effective decarbonisation of energy systems?
- What are the roles of more stringent regulations, better market design and/or higher carbon prices for the energy sector transition?
- What is the role of research, development and demonstration, and how can early deployment of a broad array of low-carbon technologies support an efficient and effective energy sector transition?
In order to address these questions, the IEA and IRENA separately have examined the investment needs for energy sector pathways that would foster putting the world on track towards a significant reduction in energy-related GHG emissions until the middle of this century. Each institution has developed one core scenario that would be compatible with limiting the rise in global mean temperature to 2°C by 2100 with a probability of 66%, as a way of contributing to the “well below 2°C” target of the Paris Agreement. Both the IEA and IRENA analyses start with the same carbon budget for the energy sector. But the pathways to reaching the goal differ between the two analyses: the modelling analysis conducted by the IEA aims at laying out a pathway towards energy sector decarbonisation that is technology-neutral and includes all low- carbon technologies, taking into account each country’s particular circumstances. The analysis conducted by IRENA maps out an energy transition that stresses the potential of energy efficiency and renewable energy sources to achieving the climate goal, while also taking into consideration all other low-carbon technologies.
While IEA and IRENA base their energy sector analyses on different approaches and use different models and/or tools, there are similarities in high-level outcomes that support the relevance for a pathway and framework for a timely transition of the global energy sector. In the following sections, key findings from the analyses of each organisation are presented.
Find the full study at the IRENA website.
