The International Energy Agency (IEA) has issued its latest report today which warns the move to clean energy is still too slow to meet climate targets.
As the report was published, insurers were alerted to scenarios within it which provide a clear map for the actions they need to take to drive energy transition.
The World Energy Outlook 2021 (WEO-2021) said a new energy economy is emerging around the world as solar, wind, electric vehicles and other low-carbon technologies flourish. But ahead of COP26, the study warned clean energy progress is still far too slow to put global emissions into sustained decline towards net zero.
The WEO-2021 said that even as deployments of solar and wind go from strength to strength, the world’s consumption of coal is growing strongly this year, pushing carbon dioxide (CO2) emissions towards their second largest annual increase in history.
“The world’s hugely encouraging clean energy momentum is running up against the stubborn incumbency of fossil fuels in our energy systems,” said Fatih Birol, the IEA executive director. “Governments need to resolve this at COP26 by giving a clear and unmistakeable signal that they are committed to rapidly scaling up the clean and resilient technologies of the future. The social and economic benefits of accelerating clean energy transitions are huge, and the costs of inaction are immense.”
“The WEO-2021 spells out clearly what is at stake: what the pledges to reduce emissions made by governments so far mean for the energy sector and the climate,” the body added. “And it sets out what needs to be done to move beyond these announced pledges towards a trajectory that would reach net zero emissions globally by mid-century – the Net Zero Emissions by 2050 Scenario from the landmark IEA report published in May, which is consistent with limiting global warming to 1.5 °C.”
Insurers were told that they need to act by climate group Insure our Future.
It said the WEO “defines a clear yardstick” by which the credibility of insurers’ climate commitments can be measured. It finds that the rapid transition from fossil fuels to renewable energy would not only help to limit global warming to 1.5C; it would also prevent 2.2 million premature deaths from fossil fuel pollution per year, create more jobs and support more widespread access to electricity than continued support for fossil fuels.
The new IEA report puts the credibility of the oil and gas insurers on the line, said the group. Four founding members of the Net Zero Insurance Alliance – Allianz, AXA, Munich Re and Zurich – are among the biggest insurers of the oil and gas industry, with a combined market share of more than 20%.
Peter Bosshard, coordinator, Insure Our Future added: “Insurance companies need to follow the science. Insure Our Future calls on all insurers, particularly members of the Net Zero Insurance Alliance, to publicly support the findings of the IEA and make a binding commitment by COP26 that they will immediately stop insuring all new oil and gas projects. We will measure their climate credibility not by lofty long-term commitments but by the short-term action they take in line with the IEA’s findings.”
For the first time in a WEO, oil demand has gone into eventual decline in all the scenarios examined, although the timing and speed of the drop vary widely. If all today’s announced climate pledges are met, the world would still be consuming 75 million oil barrels per day by 2050 – down from around 100 million today – but that plummets to 25 million in the Net Zero Emissions by 2050 Scenario. Natural gas demand increases in all scenarios over the next five years, but there are sharp divergences after this.
It added after decades of growth, the prospects for coal power go downhill in the Announced Pledges Scenario – a decline that could be accelerated further by China’s recent announcement of an end to its support for building coal plants abroad. That move may result in the cancellation of planned projects that would save some 20 billion tonnes in cumulative CO2 emissions through 2050 – an amount similar to the total emissions savings from the European Union reaching net zero by 2050.
“Today’s climate pledges would result in only 20% of the emissions reductions by 2030 that are necessary to put the world on a path towards net zero by 2050,” Dr Birol said. “Reaching that path requires investment in clean energy projects and infrastructure to more than triple over the next decade. Some 70% of that additional spending needs to happen in emerging and developing economies, where financing is scarce and capital remains up to seven times more expensive than in advanced economies.”
Insufficient investment is contributing to uncertainty over the future. Spending on oil and natural gas has been depressed by price collapses in 2014-15 and again in 2020. As a result, it is geared towards a world of stagnant or even falling demand. At the same time, spending on clean energy transitions is far below what would be required to meet future needs in a sustainable way.
“There is a looming risk of more turbulence for global energy markets,” Dr Birol said. “We are not investing enough to meet future energy needs, and the uncertainties are setting the stage for a volatile period ahead. The way to address this mismatch is clear – a major boost in clean energy investment, across all technologies and all markets. But this needs to happen quickly.”
The report added that the extra investment to reach net zero by 2050 is less burdensome than it might appear. More than 40% of the required emissions reductions would come from measures that pay for themselves, such as improving efficiency, limiting gas leakage, or installing wind or solar in places where they are now the most competitive electricity generation technologies.
These investments also create huge economic opportunities. Successfully pursuing net zero would create a market for wind turbines, solar panels, lithium-ion batteries, electrolysers and fuel cells of well over $1 trillion a year by 2050, comparable in size to the current oil market. Even in a much more electrified energy system, major opportunities remain for fuel suppliers to produce and deliver low-carbon gases. Just in the Announced Pledges Scenario, an additional 13 million workers would be employed in clean energy and related sectors by 2030, while that number doubles in the Net Zero Emissions by 2050 Scenario.