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Energy transition to be shaped by policies like emissions pricing: reports

Highlights

Two reports see continued march toward cleaner energy

Carbon pricing seen as critical transition component: BP

New York — A pair of reports released Sept. 14 consider energy transition scenarios globally and for the US that both see significant renewable energy capacity growth at the expense of fossil fuel-fired power generation, while discussing policies that could accelerate or decelerate the trend.

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"Even as the pandemic has dramatically reduced global carbon emissions, the world remains on an unsustainable path," Bernard Looney, CEO of UK-based oil major BP, said in a statement about the company's Energy Outlook. "However, the analysis in the Outlook shows that, with decisive policy measures and more low carbon choices from both companies and consumers, the energy transition still can be delivered."

Key findings include energy consumption shifting away from fossil fuels while renewables grow rapidly as the world continues to electrify. "Decisive policy measures," such as significant carbon price increases are needed to deliver "a lasting reduction in emissions" from energy use, according to the statement.

And on the same day, US-based sustainability research organization Rocky Mountain Institute offered a US perspective on the energy transition in a report titled "Delivering on America's Pledge."

That report found that renewable electricity market share would increase from 17% in 2019 to 40% by 2030 in its "Bottom Up" scenario, while coal and natural gas without carbon capture, utilization, and storage would decrease their share of power generation from 24% and 37% to 7% and 32%, respectively by that date.

The "Bottom Up" scenario considers the key drivers in the five sectors that offer the greatest opportunity for 2030 emissions reductions. The sectors are: electricity, transportation, methane, buildings, and hydrofluorocarbons.

Potential stimulus and recovery policies that could help decarbonization efforts include financial incentives for renewable energy and storage, grid modernization investments and electric vehicle funding for manufacturing, purchase incentives and charging infrastructure, RMI said.

The US Energy Information Administration forecasts that coal's share of electricity generation will fall from 24% in 2019 to 18% in 2020 and then will rebound to 22% in 2021, according to the RMI report.

"The combination of reduced power demand during the pandemic, reduced access to capital for US coal companies, and increasing climate concerns could trigger new closure announcements in the next couple of years," RMI said.

Additionally, the increasing contribution from renewable energy is "largely market-driven" and likely to prove durable as states continue increasing their clean electricity commitments, the report said.

BP's varied outlook

The scale of the energy transition shift away from hydrocarbons and toward cleaner energy sources varies significantly across the three scenarios BP evaluated.

The "Rapid" scenario assumes adoption of policy measures led by significantly increased carbon emissions prices that result in emissions reductions of about 70% below 2018 levels by 2050. The "Net Zero" scenario is more aggressive and assumes a 95% emissions reduction by 2050 with higher carbon prices, while the "Business-as-usual" case sees emissions levels in 2050 about 10% below 2018 levels.

The scale of the shift varies significantly, with the share of hydrocarbons in primary energy declining from around 85% in 2018 to between 65%-20% by 2050 and renewable energy rising to 20%-60%, BP said.

Renewable energy resources are the fastest growing source of energy over the next 30 years in all the scenarios. In "Rapid" and "Net Zero" the average annual wind and solar capacity increase over the outlook's first half is around 350 GW and 550 GW respectively, compared to the annual average of around 60 GW since 2000, according to BP.

Interestingly, the increasing cost of balancing wind and solar power intermittency as their share rises causes the pace at which they penetrate the power sector to slow in the 2040s in "Rapid" as their share of global power rises above 50%, BP said.

Similarly, the share of wind and solar power in "Net Zero" begins to flatten out in the 2040s as it rises above 60%.

Acknowledging the outlook is not meant to predict the future, BP's chief economist, Spencer Dale, said "the Outlook uses these different scenarios to help better understand the range of uncertainty we face as the energy system transitions to a lower carbon world."

"Improving our understanding of this uncertainty is an important input into designing a strategy that is robust and resilient to the range of outcomes we may face," Dale said.