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World Energy Outlook 2022: Historic turning point towards cleaner future

International Energy Agency (IEA) has recently released the latest edition of its annual flagship publication on global energy market – the World Energy Outlook 2022. The report observes that the on-going global energy crisis triggered by Russia's invasion of Ukraine is causing profound and long-lasting changes that have the potential to hasten the transition to a more sustainable and secure energy system. 

Image for representation purposes only. Source: © Peter Varga

Today's energy crisis is delivering a shock of unprecedented breadth and complexity. The biggest tremors have been felt in the markets for natural gas, coal and electricity – with significant turmoil in oil markets as well, necessitating two oil stock releases of unparalleled scale by IEA member countries to avoid even more severe disruptions.

With unrelenting geopolitical and economic concerns, energy markets remain extremely vulnerable, and the crisis is a reminder of the fragility and unsustainability of the current global energy system, the report warns.

In its Stated Policies Scenario based on the latest policy settings worldwide, new long-term measures by nations help propel global clean energy investment to more than USD 2 trillion a year by 2030, a rise of more than 50 percent from today. As markets rebalance in this scenario, the upside for coal from today's crisis is temporary as renewables, supported by nuclear power, see sustained gains.

As a result, a high point for global emissions is reached in 2025. At the same time, international energy markets undergo a profound reorientation in the 2020s as countries adjust to the rupture of Russia-Europe flows.

"Energy markets and policies have changed as a result of Russia's invasion of Ukraine, not just for the time being, but for decades to come," said IEA Executive Director Fatih Birol. "Even with today's policy settings, the energy world is shifting dramatically before our eyes. Government responses around the world promise to make this a historic and definitive turning point towards a cleaner, more affordable and more secure energy system."

For the first time ever, the global demand for every fossil fuel exhibiting a peak or plateau. In this scenario, coal use falls back within the next few years, natural gas demand reaches a plateau by the end of the decade, and rising sales of electric vehicles (EVs) mean that oil demand levels off in the mid-2030s before ebbing slightly to mid-century, opines WEO.

This means that total demand for fossil fuels declines steadily from the mid-2020s to 2050 by an annual average roughly equivalent to the lifetime output of a large oil field. The declines are much faster and more pronounced in the WEO's more climate-focused scenarios.

For the first time, global demand for each of the fossil fuels shows a peak or plateau across all WEO scenarios, with Russian exports in particular falling significantly as the world energy order is reshaped

World Energy Outlook 2022

For instance, the share of fossil fuels in the global energy mix in the Stated Policies Scenario falls from around 80 percent to just above 60 percent by 2050. Global CO2 emissions fall back slowly from a high point of 37 billion tonnes per year to 32 billion tonnes by 2050.

The report further states that today's growth rates for deployment of solar PV, wind, EVs and batteries, if maintained, would lead to a much faster transformation than projected in the Stated Policies Scenario, although this would require supportive policies not just in the early leading markets for these technologies but across the world.

Supply chains for some key technologies – including batteries, solar PV and electrolyzers – are expanding at rates that support greater global ambition. If all announced manufacturing expansion plans for solar PV see the light of day, manufacturing capacity would exceed the deployment levels in the Announced Pledges Scenario in 2030 by around 75 percent. In the case of electrolyzers for hydrogen production, the potential excess of capacity of all announced projects is around 50 percent.

Stronger policies will be essential to drive the huge increase in energy investment that is needed to reduce the risks of future price spikes and volatility, according to this year's WEO. While clean energy investment rises above USD 2 trillion by 2030 in the States Policies Scenario, it would need to be above USD 4 trillion by the same date in the Net Zero Emissions by 2050 Scenario, highlighting the need to attract new investors to the energy sector, WEO 2022 says.

"The environmental case for clean energy needed no reinforcement, but the economic arguments in favour of cost-competitive and affordable clean technologies are now stronger – and so too is the energy security case. Today's alignment of economic, climate and security priorities has already started to move the dial towards a better outcome for the world's people and for the planet," Dr Birol said.

"It is essential to bring everyone on board, especially at a time when geopolitical fractures on energy and climate are all the more visible," he said. "This means redoubling efforts to ensure that a broad coalition of countries has a stake in the new energy economy. The journey to a more secure and sustainable energy system may not be a smooth one. But today's crisis makes it crystal clear why we need to press ahead."

IEA Executive Director commented that amid the major changes taking place, a new energy security paradigm is needed to ensure reliability and affordability while reducing emissions. "That is why this year's WEO provides 10 principles that can help guide policymakers through the period when declining fossil fuel and expanding clean energy systems co-exist, since both systems are required to function well during energy transitions in order to deliver the energy services needed by consumers".

"And as the world moves on from today's energy crisis, it needs to avoid new vulnerabilities arising from high and volatile critical mineral prices or highly concentrated clean energy supply chains", he added. 

Author : Dhiyanesh Ravichandran
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