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2025 Could Mark a Tipping Point for the Low-Carbon Energy Transition

Author: Esther Whieldon

October 1, 2021


The world must move faster to curb emissions and show concrete progress by 2025 or risk overshooting 2-degrees warming, according to an S&P Global Sustainable1 analysis of S&P Global Platts Analytics’ Future Energy Outlooks.

Almost all energy end-use sectors, ranging from heavy industry to transport, would need to cut annual emissions by 2025 relative to 2019 levels under our 2-Degree Outlook; 2025 CO2 emissions under the 2-Degree Outlook would be 9% below emissions under the Reference Case Outlook.

Generation from wind and solar would need to increase 133% and 98%, respectively, from 2019 levels by 2025 under the 2-Degree Outlook.

Even though most national net zero targets are decades away, the world would need to make significant strides in decarbonizing energy-related emissions within the next four years to achieve net zero emissions by 2050.

For years, scientists have said that limiting global warming to no more than 1.5 degrees Celsius above pre-industrial levels is crucial to avoid some of the worst impacts of climate change. The latest report from the U.N.’s Intergovernmental Panel on Climate Change created an even greater sense of urgency for all parts of the world to start moving now, rather than later, to reach that goal.

Even under a less ambitious scenario in which global warming is limited to 2 degrees C, the world would need to make cuts to fossil-fuel related emissions across multiple sectors by 2025, S&P Global Sustainable1 research finds.

The research is based on an analysis of two S&P Global Platts Analytics Future Energy Outlooks: One, the Reference Case, reflects the current state of policies, technologies and markets, as well as expectations on how those factors are most likely to evolve. The second is the more ambitious 2-Degree Outlook, and in the research, we examine how carbon dioxide emissions would need to change across geographies, sectors, and the power supply mix to limit global warming to 2 degrees.

The world must quickly reduce fossil fuel emissions to tackle climate change

Reference Case Outlook shows the current trajectory for fossil-fuel related emissions, broken down by geographies. The 2-Degree Outlook shows how those geographies need to reduce emissions to limit global warming to 2 degrees C relative to pre-industrial levels.

Source: Platts Analytics Future Energy Outlooks
Data Effective: August 21, 2021

The physical impacts of climate change pose real risk to businesses as extreme weather and other climate-related effects can hurt supply chains, endanger the workforce, and cause major damage to infrastructure.

Setting a net zero target can be an important first step for companies to address the threat of climate change, but ambitious goals alone are not sufficient. S&P Global Sustainable1 believes companies would have to make proactive changes on the path to net zero now. They would need to create realistic plans to transition to a low-carbon world. And crucially, those transition pathways would need to include near-term milestones. The path to 2050 won’t be attainable without credible signposts in the next few years.

Putting CO2 in perspective

1 million metric tons of CO2 per year equals:

Source: S&P Global Platts Analytics and IEA
The US must curb natural gas emissions by 2025

A review of S&P Global Platts Analytics’ Future Energy Outlooks reinforces the idea that near-term action would be required.

The CO2 emissions cuts needed in the near term are not uniform across all geographies or sectors. For example, under the 2-Degree Outlook, the world would need to reduce annual emissions from fossil fuel combustion by over 50% by 2050, and when those required emissions cuts are modelled at the country level, a varied picture emerges based on the age of the underlying asset base, economic imperatives, and long-term policy targets.

For example, under the 2-Degree assumptions, the U.S. would need to curb emissions from coal by 22%, natural gas by 11%, and oil by 8% by 2025 from 2019 levels — the year before the COVID-19 pandemic upended the economy. China, on the other hand, with a national ambition to double GDP within the next decade and a half, would only see a 6% decrease in emissions from coal under the Platts 2-Degree Outlook.

Long-Term Climate Goals Require Credible Near-Term Milestones

Reference Case Outlook shows the current trajectory for global emissions, broken down by key sectors that use energy. The 2-Degree Outlook shows how much those sectors must reduce emissions to limit global warming to 2 degrees C relative to pre-industrial levels.

Transportation includes air travel, aviation, commercial road transportation, marine transportation and passenger vehicle transportation.

Source: Platts Analytics Future Energy Outlooks
Data Effective: August 21, 2021

Yet the chances of either China reducing emissions from coal or the U.S. curbing natural gas emissions by 2025 appear to be low. Rather, on its current trajectory, China is expected to increase its coal-related emissions over the next four years by about 4% due to strong growth in demand for electricity, according to the Platts Reference Case Outlook. And the U.S. is currently on track to increase natural-gas related carbon emissions by about 5% by 2025, the model shows. Most of those natural gas-related emissions gains are linked to emissions from the industrial sector as well as gas used by the energy industry across extraction, processing, refining and liquefaction.

While U.S. utilities are building new natural gas plants, the model indicates emissions from gas-fired generation would be down 5% under the Platts Reference Case. These emissions would decline slightly less — by 4% — under the 2-Degree Outlook, as gas is needed to offset an accelerated coal phase out and as key end use sectors are electrified.

View The S&P Global Platts Atlas of Energy Transition > 

Energy users would also need to take big steps now

Countries can only make the emissions cuts needed to transition to a low-carbon economy if companies and sectors also change. As such, an analysis of what needs to change at the sector level can help companies, investors and governments understand where the biggest initial moves are needed.

Almost all energy, industrial, and transportation sectors would need to have reduced total annual emissions in 2025 compared to 2019 levels, although to varying degree, under the Platts 2-Degree Outlook.

How the World's Power Supply Mix Needs to Change

Reference Case Outlook shows the current trajectory for power supplies broken down by fuel source. The 2-Degree Outlook shows how the power supply mix would need to change to limit global warming to 2 degrees C relative to pre-industrial levels.

Source: Platts Analytics Future Energy Outlooks
Data Effective: August 21, 2021

For example, the electric power industry would need reduce the amount of carbon it puts into the atmosphere annually by 7% by 2025 compared with 2019 levels (vs. a 3% increase by 2025 forecast under the Reference Case Outlook), while road transportation emissions would need to decline by 1% (vs. a 4% increase by 2025 forecast under the Reference Case Outlook).

Yet, as we have previously noted, the maritime transportation sector is only now starting on efforts to reduce emissions, with carbon-free commercial shipping expected to enter pilot phases in 2023. The 2-Degree Outlook forecasts that the maritime sector will see emissions increase by 7% between 2019 and 2025. By 2050, the maritime sector would need to curb emissions by 15% under the 2-Degree Outlook, while under a Reference Case Outlook the continued recovery in international trade leads to a net emissions gain in shipping.

For its part, the International Maritime Organization, which is the regulatory agency for the global maritime sector, aims to cut annual greenhouse gas emissions from maritime shipping in half by 2050 from 2008 levels.

More nuclear and renewables needed by 2025

Scientists have long indicated that the world will need to transition away from emitting fossil fuels to limit global warming. The world’s future supply mix will look very different by 2050 than it does today.

In the near term, low-carbon power supplies would need to accelerate globally by 2025 under the 2-Degree Outlook compared to the Reference Case.

According to the Platts data, as part of broader gains of low-carbon power capacity, the share of nuclear energy in the global power mix would need to stay near constant at 10% from 2019 to 2025 in a 2-Degree Outlook, primarily by postponing the planned retirements in some of the world’s largest nuclear fleets. Then, to deliver a meaningful gain in low carbon power gen capacity by 2050, investment decisions need to be taken soon to ensure these long lead time projects can contribute to decarbonization.

As for other zero-carbon generation? Generation from wind and solar would need to increase 133% and 98%, respectively, from 2019 levels by 2025 under the 2-Degree Outlook. The current Reference Case trajectory shows wind generation supplies increasing by 100% and solar by 81% by 2025, in comparison. This reflects the fact that delivering meaningful progress on long-term targets would require substantial increases in capacity already in the short term.

Beyond 2025, investments in developing and scaling other low-carbon technologies — such as carbon capture and sequestration, improved battery storage, sustainable biofuels and low carbon hydrogen (like green hydrogen derived using water and renewable electricity) — will be needed, scientists and academic studies have shown.

To understand the role hydrogen could play in the low-carbon transition, listen to this episode of ESG Insider, a podcast from S&P Global Sustainable1. It's also available on Soundcloud, Spotify or Apple Podcasts.

The path ahead

Energy users and governments are not the only ones that need to make changes in the coming years. Customers will also play a role.

For example, the International Energy Agency in July estimated that about 55% of energy-related emissions reductions needed to achieve net zero by 2050 would be “linked to consumer choices such as purchasing an [electric vehicle], retrofitting a house with energy efficient technologies or installing a heat pump” powered by electricity.

And the financial sector, through such things as low-carbon funds, sustainable debt, and index-based funds, must also help align the financial sector with climate goals.

Companies may be wise to move sooner rather than later to ensure they can make changes in the most cost-effective manner possible before governments enact new decarbonization requirements with higher implementation costs as we near the 2050 deadline. Moreover, pressure from investors and the public, particularly the younger generations, appears likely to increase as the physical impacts of climate change increasingly manifest.

We’re hearing a growing number of voices calling for this dramatic change. For example, the IEA, which was created decades ago to help ensure stable global fossil fuel supplies, in July published a report looking at what needs to happen to global energy under a net zero by 2050 scenario. The IPCC in 2018 said that limiting global warming to 1.5 degrees will require achieving global net zero emissions by around 2050.

Achieving net zero “requires nothing short of a total transformation of the energy systems that underpin our economies,” the IEA wrote in its report, which included a number of markers for 2025 and 2030 along that road. The divergence in the Reference Case and 2-Degree Outlooks from S&P Global Platts Analytics reinforces the importance of investing in low-carbon solutions today to deliver on more ambitious targets over the longer term.

The IEA's net zero pathway for the global energy sector envisions a number of goalposts the world needs to achieve on or before 2025. Here are some examples:

  •  Fossil fuel boilers would no longer be sold in 2025, except where they are compatible with hydrogen, and sales of electricity-powered heat pumps would have increased. 
  •  Governments will by 2025 have created measures to support sustainable biomass and will have decided how to create markets for biofuels as well as ways to make them more cost competitive with fossil fuels.
  •  Retrofits of coal-fired generation to co-fire with ammonia and retrofits of gas turbines to co-fire with hydrogen would also need to begin by 2025.
  •  Emissions associated with aviation would peak in 2025. 
  •  Electric vehicle charging infrastructure in urban areas need to be deployed by 2025 to such an extent that households who do not have their own charging stations feel comfortable opting for electric vehicles.
  •  Governments would need to update building codes by 2025 to ensure that zero-carbon-ready buildings are the new normal across the world by 2030 for both new constructions and retrofits.
  •  Starting in 2021, no new oil and gas fields would be approved for development and no new coal mines or mine extensions would be needed — “beyond projects already committed.” 

Source: IEA, S&P Global Sustainable1

Mark Mozur, S&P Global Platts Analytics, contributed to this piece.

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