The future of the energy sector was under scrutiny this week, while biodiversity received some much-needed attention in Paris.
Energy. Tricky subject. And multi-dimensional. Especially on the Friday before Blue Monday*. This, we’re told, is the most depressing and energy-sapping day of the year, due to the weight of post-Xmas debt levels, the distance from pay day, the failure of new year resolutions and, in the northern hemisphere at least, the long, dark, cold nights. And that’s before mentioning the B word. Or the C word.
But energy hit the headlines for less transient reasons this week, with the International Energy Agency declaring its intention to publish a “comprehensive roadmap” for the energy sector’s journey to net-zero emissions in 2050. A Clean Energy Transitions Summit will be held in March and a net-zero report, published in May. The report will set out implications for producers, users, and governments of a full decarbonisation of the energy sector, required to support the goal of limiting climate change to 1.5 degrees Celsius.
Executive director Dr Fatih Birol said this “total transformation” would entail decisive action “this year, next year and indeed every year to 2050”. The IEA emphasised the need for consensus across governments and nodded to the need for a ‘just transition’ with the establishment of a new commission to consider social and economic impacts of decarbonisation, chaired by Danish energy minister Dan Jorgensen, which will make its recommendations before COP26.
In an accompanying blog, Birol admitted the sector and its users are confronted by a “Herculean undertaking”, insisting that action must gather pace rapidly. By 2030, he said, electric cars must be at least 50% of global sales, and production of low-carbon hydrogen must expand almost a hundredfold.
Birol said investors should take heed, but investors had some advice for the IAE too. The UN-convened Net-Zero Asset Owner Alliance asked the IAE to publish the detailed modelling behind its 1.5 degree scenario to help investors better understand the changes needed over the next decade to reach net zero by 2050.
Plans to decarbonise portfolios are, of course, already accelerating, not least among the members of the Net-Zero Asset Owner Alliance, which this week committed to reduce carbon emissions from their investments by around a quarter by 2025.
Further incentive to act was provided this week by McKinsey & Co. The consultants’ Global Energy Perspective 2021 predicted a strong post-Covid 19 rebound in power demand, but a decisive shift away from fossil fuels. With coal already having passed peak demand, McKinsey predicted that aggregate fossil fuel demand would fall from 2027, having previously forecast a peak in the 2030s.
The threat to the oil and gas industry was further underlined in a report on long-term ESG risks by Fitch, which identified oil production and oilfield services as the sector most vulnerable to shifts the transition to net zero.
McKinsey said it expects green hydrogen to be cost-competitive with gas by 2030, and predicts a “sharp uptake” in solar and wind power generating capacity as renewables become cheaper than fossil fuels.
The consultants acknowledged the obvious, that we are not yet on a path to limiting climate change to 1.5 degrees. Meanwhile, the UN Environment Programme noted that we are not yet adapting to the impacts of climate change already being felt, in its Adaption Gap Report 2020. “Huge gaps remain,” the UNEP warned, “particularly in finance for developing countries and bringing adaptation projects to the stage where they bring real reductions in climate risks”.
The report made the case for nature-based solutions, including the protection, restoration and sustainable management of natural eco-systems.
This message was echoed across this week’s One Planet Summit, hosted by France and focused on the many and severe threats posed to biodiversity. The event featured multiple speeches including one by EC President Ursula von der Leyen, as well as pledges from the UK government and a new initiative from the Prince of Wales, backed by many in the finance sector. Many will welcome the greater attention paid to the need to protect natural habitats and environments, but one 18-year-old remained sceptical.
*Of course, Blue Monday is nonsense. Pseudo-science dreamt up by a PR agency to sell summer holidays to gloomy Brits in 2005. Although an interesting artefact in the world of media relations, we’re better off consigning it to the dustbin of history and joining America in celebrating Martin Luther King Jr Day, which typically falls on the same day.