The world is currently on a trajectory towards a 2.5-degree Celsius temperature increase, warns Wood Mackenzie’s ‘Energy Transition Outlook’ report. This assessment marks a critical milestone in the global effort to transition towards a lower carbon future, underscoring the urgency for transformative action to avoid missing the Paris Agreement’s target of limiting the average temperature increase to below 1.5-degrees Celsius.
Key Findings from the Report:
1.5°C Goal Still Possible but Demands Urgent Action: Achieving the 1.5-degree Celsius target is still possible but requires immediate and decisive action, with limited temperature overshoot. The outcome heavily depends on actions taken within this decade.
Massive Scaling of Low Carbon Power Supply and Infrastructure: The report emphasizes the need to scale up low carbon power supply and infrastructure at double the pace of the last decade. Current delays in renewables assets due to limited grid interconnections present a challenge.
Significant Investment Required: A minimum investment of US$1.4 trillion annually is required in renewables, infrastructure, and energy transition technologies to meet the base case goals. This investment needs to rise to US$2.4 trillion per year to achieve a net-zero scenario.
Oil & Gas in a Managed Transition: Oil and gas will continue to play a role in a managed transition, necessitating replenishment of supply as the world moves towards net zero. The estimated annual spend for oil & gas is US$0.5 trillion in the base case and US$0.2 trillion for the net-zero scenario.
Shift Towards Electricity as Major Energy Market: Electricity is set to become the primary energy market, surpassing oil and gas. Renewables will be the main source of power supply. Power demand is expected to double every 10 years, supporting road transport electrification and green hydrogen production.
Crucial Role of Emerging Technologies: Carbon Capture, Utilization, and Storage (CCUS) and Direct Air Capture (DAC) are highlighted as crucial technologies to tackle hard-to-abate industries and restore the carbon cycle over the long term.
Emerging Technologies: Hydrogen & CCUS: Low carbon hydrogen and CCUS projects are transitioning from the pilot phase to mainstream applications, contributing to a significant reduction in fossil fuel use.
Oil & Gas Transition: While a decline in fossil fuel demand is expected, oil and gas will continue to play a role in the transition. Greater end-use efficiency and electrification will drive a decline in their share of end-use energy demand.
Investment for Decarbonization: Meeting the 1.5-degree target will require a total investment of US$2.7 trillion per year, a 150 percent increase from the current estimated US$1.9 trillion per year needed to decarbonize the energy sector.
Impact of Geopolitical Events:
The recent Russia-Ukraine conflict has significantly impacted the global supply of energy and metals, amplifying the effect of underinvestment in the resources sector over the last decade. Supply security concerns have escalated worldwide, leading to higher prices across energy and mining commodities, fueling inflation.
Simon Flowers, Chairman, and Chief Analyst at Wood Mackenzie, emphasized, “Achieving 1.5°C is going to be extremely challenging, but it is possible and greatly depends on actions taken this decade.”
The report underscores the urgent need for global cooperation and institutional frameworks to drive innovation, technology development, and sustained investment critical for transitioning to a low carbon future and meeting the 1.5-degree climate target.