Fossil fuel investment may fall $3.7 trillion in 15 years

Additional $300-600 bn needed for low-carbon goals, say CEOs representing Energy Transition Comm.

The transition to low-carbon energy systems across the world will have to be faster than seen in 20 years, says a report released globally on Tuesday.

Energy productivity has to increase three per cent each year and the share of energy from zero-carbon sources has to rise at least one percentage point, says the report by the Energy Transitions Commission (ETC). Strong public policies will be essential to achieve this. “In addition, the progress implies a major shift in the mix of investment in the energy system: Investment in fossil fuels over the next 15 years could be about $3.7 trillion lower than in a business-as-usual scenario, while investment in low-carbon technologies and more energy-efficient equipment and buildings could increase by $6 trillion and $9 trillion, respectively.”

The shift required in the energy investment mix, it says, will mean an extra $300-600 billion in annual investment. This will not pose a major macroeconomic challenge in a world where global savings and investments reach $20 trillion annually. “But public policies that reduce risk are needed to reduce the cost of capital for long-term sustainable infrastructure investment and extra support will be required for developing countries.”

ETC is a grouping of chief executives, thought leaders and entities founded by Shell to “accelerate change towards low-carbon energy systems that enable robust economic development and limit the rise in global temperature to well below 2°C”.

“We are ambitious but realistic,” says Adair Turner, Chair of the ETC. “Despite the scale of the challenges facing us, we firmly believe the required transition is technically and economically achievable if immediate action is taken.” 

Ajay Mathur, co-chair of the ETC, says: “This is not just another plan; it’s a better plan. We show how the world can remove barriers to transform challenges into opportunities, not only in advanced economies, but also in emerging countries.”

Economic growth and affordable, reliable, clean energy can go together, while meeting the Paris Agreement objective of limiting global warming to well below 2°C, says the report. Falling costs of renewables and batteries make cost-effective, clean electricity unstoppable. There is still untapped potential to improve energy productivity — i.e., the energy-intensity of gross domestic product. Governments, investors and businesses must act now to halve global carbon emissions by 2040, it said, while ensuring economic development and energy access for all, says the report. 

By 2040, half of carbon emission reductions could come from a combination of decarbonisation of power generation and electrification of a wider set of activities in the transport and building sectors, says the report. Decarbonisation of all activities that cannot be cost-effectively electrified — such as aviation, shipping, and heavy industries like steel, cement or chemicals — is needed. Progress is slow on this count, making stronger public policies and large-scale public and private investment must.

Case studies carried out in California, Germany, Maharashtra and the Nordic region show resources available are sufficient to cope with renewable deployment by 2025. ETC, however, says the Maharashtra study shows how challenges created due to rapid increase in demand comes to the fore. “India will have to invest significantly in expanded inter-regional connections, better leakage control, development of storage capacity and increased forecasting capacity.”

ETC notes that by stepping away from the Paris Agreement, the US would slow progress and increase the cost of transition. “It would make it more difficult for American businesses to seize the economic opportunities offered by a low-carbon pathway and to develop the US leadership and competitive advantage in new economic sectors. It could, therefore, limit the benefits of the transition for American businesses and impact negatively jobs creation. If the US steps down from leading the energy transition globally, other countries are ready and eager to step up to take the lead.”

If appropriate policies are in place, it will be possible to build within 15 years power systems that rely on variable renewable sources for 80-90 per cent of supply and that can deliver electricity at an all-in cost (including back-up and flexibility needs) of less than $70 per MWh, which is likely to be competitive with fossil fuels-based power generation. 

“Clean electricity should then be used in an increasing range of economic activities, with growing potential to substitute clean electricity for fossil fuels in light vehicle transport and heating.”

The transition to low-carbon energy systems would ensure longer and healthier lives and economic opportunities related to the development of technologies and innovative business models, says the report.