COVID-19 has shown that decarbonization goals are achievable

Decarbonizing energy in a way that is affordable for all will require determination and a variety of technologies, policies and regulation, writes S&P Global Platts' global director of analytics, Chris Midgley.

Sir David Attenborough is right. If we can act in 2021 it will make all the difference, but the world seems laden by rhetoric. The stickiness of hydrocarbons is huge, but if COVID-19 has taught us anything it is that change is possible and it needs to be led by the hydrocarbon and energy industry itself as well as consumers, backed up by strong government-led policies and incentives.

Despite the tremendous growth of renewables, S&P Global Platts Analytics' most plausible scenario points to fossil fuels still accounting for half of the energy mix in 2050.

The world needs to bend the curve, to move from 4 degrees Celsius warming to a 1.5-2 C scenario, but it also needs to be a "just transition". While OECD countries talk of the climate emergency and the need to reduce carbon, this is way down the list of UN sustainability priorities for developing countries, which first want access to reliable and affordable energy. Today, one in nine people does not have access to any electricity and nearly 3 billion people do not have access to clean cooking fuels, resulting in health issues and high mortality rates.

The world needed an emergency—a global pandemic—to come together and drive action. We produced a vaccine in less than year when most take 10 years. What could we do if we realized our planet was dying and treated climate as a real emergency—could the world bend the curve to achieve a 2 C or even 1.5 C world?

Perhaps there are signs that momentum is gaining and COP26 in Glasgow at the end of this year could be the opportunity for the world to move away from the rhetoric that has dominated so far, to setting out a roadmap with clear actions for today to achieve 2 C.

This means the issue of cost, and who pays, needs to be addressed. Many initiatives impact everyone, including the poorest end of society, those for whom energy is the opportunity to escape poverty. We have already seen the reaction of society to higher energy prices, such as the gilets jaunes movement in France. A study by Yale found that the cost of limiting warming to 2 C would need an increase in our energy costs of $2,000 per year, yet found that US society would only be willing to pay $200.

Everyone has the right to affordable energy, but not everyone should have the right to consume as much as they want. A consumer carbon allowance is one path whereby people could be made to pay a price for consuming more than their allowance, which will help to fund local and regional decarbonization. The digital world can trace and track all our carbon usage (carbon credit card, smart meters) and thus prompt our conscience and our bank balance to do something about it.

The path forward must avoid demonizing the fossil fuels industry, which needs to welcome creativity from activists and make the industry part of the solution and not the problem. IOCs are already acting and initiatives such as the Prince of Wales' Terra Carta are helping bring industry together and, through dialogue, driving change.

Trying to eradicate fossil fuels is simply not realistic, but we can reduce the carbon impact. Low carbon commodities markets could incentivize low-carbon-intensity oil and gas production and more efficient supply chains. Refineries can switch to renewable hydrogen for process heat, increase integration with petrochemicals for the materials of the transition and produce fuels to support increasingly efficient engines.

Renewable electricity was over 70% of the new global installed capacity in 2020 yet fossil fuels (mainly coal) made up 65% of new incremental generated electricity. With wind and solar only making up 8% of the generated electricity, renewables cannot be a solution on their own. As such, despite opposition, the world will need dispatchable nuclear power, hydrogen and CCUS (carbon, capture, use and sequestration) to have any chance of achieving a 2 C outcome.

An "all of the above" pathway will need research, investment, regulation and policy to drive action. Tax incentives will be required to develop new technologies like small modular nuclear reactors, hydrogen manufacture or CCUS.

Change needs to be driven by setting targets in areas such as share of nuclear generation, scrappage of older gasoline/gasoil vehicles, blend requirements of hydrogen into natural gas, sustainable aviation fuel use in jet fuel, biofuels and removal of CO2 through CCUS (perhaps on a per-unit-of-GDP basis).

There is much talk about the circular carbon economy. But it assumes that a price on carbon will lead the market to naturally balance. Regrettably, this is too purist and the world needs greater legislation, actions and incentives to drive changes in producer and consumer behavior to achieve the desired climate outcomes.