Peak emissions from fossil fuels could be reached by 2025, with the contribution to global energy supply falling to 73 percent by 2030, after for decades it had been stuck well above 80 percent. This is thanks to renewables, energy efficiency and electrification, which have completely reconfigured the energy scenario by the end of the decade.

This is the most important message to emerge from the International Energy Agency's (IEA) World Energy Outlook 2023, the most authoritative international report on energy scenarios, presented today, October 24, and obtained in a preview by Renewable Matter. Good news ahead of the COP28 climate negotiations in Dubai.

The combination of the growing momentum of clean energy technologies and structural and geopolitical economic changes around the world has had major implications for fossil fuels, shifting the peaks in global demand for coal, oil, and natural gas possible as early as this decade. A resounding statement: this is the first time it has been outlined in scenarios developed by the World Energy Outlook (WEO23), which has always been the go-to gospel for governments and multinational corporations.

Decarbonization, full steam ahead

The IEA report describes an energy system by 2030 in which clean technologies will play a much larger role than they do today. Globally, solar photovoltaics will generate more electricity than the entire U.S. energy system currently does; about 10 times as many electric cars will be on the road as those currently registered; the share of renewables will reach nearly 50 percent of the global electricity mix (up from about 30 percent today); heat pumps and other electric heating systems will surpass fossil fuel boiler sales globally while investment in new offshore wind projects will be three times that of gas and coal-fired thermal power plants.

“The transition to clean energy is happening all over the world and is unstoppable. It's not a question of if it will happen, but how soon – and the sooner, the better for all of us,” said IEA Executive Director Fatih Birol. “Governments, companies and investors must support the transition to clean energy rather than hinder it. The benefits are immense, including new industrial opportunities and jobs, energy security, cleaner air, universal energy access and a safer climate for all. Considering the tensions and volatility in today's traditional energy markets, claims that oil and gas represent safe choices for the world's energy and climate future appear weaker than ever.”

An acceleration strategy

The World Energy Outlook's scenario is based only on current government policy settings (Stated Policy Scenario, STEPS). However, as the report indicates, the growing geopolitical tensions in the Middle East must be taken into account, which once again bring attention to energy security and instability in oil markets, 50 years after the oil shock that led to the founding of the IEA. This scenario will create further instability for an uncertain global economy that is stubbornly suffering from the effects of inflation and high interest rates.

To further accelerate the decarbonization of the energy sector, WEO23 proposes a comprehensive strategy based on five pillars: tripling global renewable energy capacity; doubling the rate of energy efficiency improvements; reducing methane emissions from fossil fuel operations by 75 percent; supporting innovative and large-scale financing mechanisms to triple clean energy investments in emerging and developing economies; and measures to ensure an orderly phase-out of fossil fuels, including an end to new approvals of coal-fired power plants.

Strategy that could be well taken up in the December U.N. negotiation to provide working directions for nations for the period from the annual Global Stocktake (the state of global decarbonization) to the next one in 2028. As well as giving clear investment guidance to global funds and large (and small) shareholders.

The peak of fossils

If coal and oil (whose market is increasingly unstable) are sharply downsized – but not slowing down as required by climate models – it is worth noting how what has repeatedly been called “the transitional fossil energy source,” namely natural gas, also loses steam. Its golden age, announced in 2011 by the very same report, comes to an end. In fact, the IEA has once again revised downward its forecast for natural gas demand. If in 2022 the demand for natural gas by 2040 had already been sharply downsized (570 bcm, about 12 percent reduction from previous years), in the new document the estimates have been corrected with a staggering drop of another 140 bcm, a direct consequence of the energy crisis triggered by Moscow.

 This is news that is expected to trigger panic among those who have invested in new LNG projects that will come on stream starting in 2025 (equivalent to about 45 percent of current global LNG supply). On the one hand, these projects will alleviate concerns about gas supply prices, but on the other hand they also risk creating an oversupply and thus becoming redundant in the 2030-40 decade, entering the class of stranded assets.

If the data were to be confirmed by the facts (and reality has often exceeded some of the IEA's rosiest decarbonization predictions) opportunities for Russia to expand its customer base would collapse. Russia's share of internationally traded gas, which was 30 percent in 2021, is set to fall by half by 2030.

Renewables data from the World Energy Outlook

The data on renewables is also surprising. By the end of the decade, renewables will contribute about 80 percent of new power generation capacity through 2030, with solar alone accounting for more than half of this expansion. But the scenario based on today's policies (STEPS) only considers current solar panel capacity. In fact, potentially, given also the market for raw materials (but also for recycling and remanufacturing), the world could have a production capacity of more than 1,200 gigawatts (GW) of solar panels per year.

However, the forecast is limited to “only” 500 GW installed by 2030. On the other hand, if further accelerated (e.g. by strengthening gigafactories in Europe and America), and a production capacity of at least 800 GW of solar photovoltaic panels by the end of the decade was achieved, coal use could be reduced everywhere: -20% in China compared to a scenario based on current policies, -25% in South America, Africa, Southeast Asia and the Middle East.

China slows down

And it is precisely to Beijing that the report devotes much space. Over the past decade, China accounted for more than 50 percent of the growth in global energy demand and 85 percent of the increase in CO₂ emissions from the energy sector. But today its economy is changing. Chinese leaders have long recognized that the current phase of massive, resource-intensive investment in urbanization, infrastructure and factories is coming to an end. As early as 2007, China's prime minister at the time warned that “the biggest problem in China's economy is that growth is unstable, unbalanced, uncoordinated and unsustainable.”

Rebalancing could have substantial impacts on the outlook for China's energy sector and, given China's size, globally as well, particularly on demand for fossil fuels, especially natural gas. At the same time, part of the resources in infrastructure should be directed to industrial development, especially photovoltaics, which could grow further (pushing competition with Southeast Asia, where there is more than 13 percent of production, the U.S., Turkey and Europe). According to the report, potentially 500 GW of production is expected by the end of the decade, a truly impressive figure that is set to change the PV market for good.

The reactions

It is easy to imagine that the World Energy Outlook 2023 – which we recommend reading in full – will have major consequences, considering its reputation brought by careful peer-review by energy, oil&gas companies (ENI and ENEL are among the main funders of the work), energy ministries halfway around the world, and academics and experts.

For Matteo Leonardi, co-founder and director of the think tank ECCO, “the IEA outlook is focused on decarbonization. A work against the clichés of climate impossibilism: the transition is happening globally and the 1.5 °C climate scenario [of global average temperature increase by the end of the century, ed.] is achievable if policies strengthen the transition to solar, electrification, industrial strategy and social sustainability. What is needed is not a climate-polarized policy, but one that is capable of presenting a strategy in these four dimensions.”

Jan Rosenow, director of the European Regulatory Assistance Project (RAP) program, said, “The new World Energy Outlook offers ample room for optimism. It predicts that global demand for coal, oil and natural gas will peak within this decade. This is accompanied by unprecedented growth in clean energy such as renewables, electric vehicles and heat pumps, although there is no change in current policies. With more ambitious policies, the world could move even faster. But the momentum is clearly there, and this WEO shows it.”

This article is also available in Italian / Questo articolo è disponibile anche in italiano

Cover image: Dan Meyers, Unsplash