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Pursuing a 2oC pathway

Addressing the risks of climate change implies a variety of potential future pathways that would affect supply and use of energy across society. Advancing the application of cost-effective technology solutions will likely be critical to pursue a 2oC pathway, while helping keep energy reliable and affordable.

The climate challenge

Many uncertainties exist concerning the future of energy demand and supply, including potential actions that societies may take to address the risks of climate change. The following analysis is intended to provide a perspective on hypothetical 2oC scenarios.

Since 1992, when nations around the world established the United Nations Framework Convention on Climate Change (UNFCCC), there has been an international effort to understand and address the risks of climate change. After more than two decades of international effort, in December 2015, nations convened in Paris and drafted an agreement that for the first time signals that both developed and developing nations will strive to undertake action on climate change and report on related progress.

The Paris Agreement1 “aims to strengthen the global response to the threat of climate change… by: Holding the increase in the global average temperature to well below 2oC above pre-industrial levels...”

Key elements of the agreement include:

  • “Each party shall prepare, communicate and maintain successive nationally determined contributions that it intends to achieve.”
  • “Each party shall communicate nationally determined contributions every five years.”

The nationally determined contributions (NDCs) provide important signals on government expectations related to the general direction and pace of likely policy initiatives to address climate risks.4 In this regard, the UNFCCC reported in May 2016 that “the estimated aggregate greenhouse gas emission levels in 2025 and 2030 resulting from the intended nationally determined contributions do not fall within the least-cost 2oC scenarios.” 5,6

Considering 2oC scenarios

According to the International Energy Agency (IEA), setting upon a “well below 2oC” pathway in concert with the Paris Agreement implies “comprehensive, systematic, immediate and ubiquitous implementation of strict energy and material efficiency measures.”7 Given a wide range of uncertainties, no single pathway can be reasonably predicted. As a result, many governments, universities and non-governmental organizations are seeking to analyze potential 2oC scenarios or pathways. Such studies may be useful in helping identify options to address climate risks and ensure energy remains reliable and affordable.

A key uncertainty relates to advances in technology that may influence the cost and potential availability of certain pathways toward a 2oC scenario. Many potential pathways are designed to utilize a full range of technology options, which may have significant benefits for society by minimizing related costs of a dramatic transition process.

Considerable work has been done in the scientific community to explore energy transformation pathways. A recent multi-model study coordinated by the Energy Modeling Forum at Stanford University (EMF 27) brought together many energy-economic models to assess technology and policy pathways associated with various climate stabilization targets (e.g., 450, 550 ppm CO2 equivalent or CO2e), partially in support of the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC).

Global energy-related CO2 emissions

The chart above illustrates potential CO2 emission trajectories under EMF 27 full technology scenarios8 targeting a 2oC pathway (Assessed 2oC Scenarios) relative to the 2018 Outlook, and baseline pathways (Assessed Baseline Scenarios) with essentially no policy evolution. The 2018 Outlook incorporates significant efficiency gains and changes in the energy mix, resulting in a projected CO2 emissions trajectory that resides between the pathways illustrated by the baseline and 2oC scenarios.

A key characteristic of the Assessed 2oC Scenarios is that energy-related CO2 emissions go to zero, or potentially negative, by the end of the century. As shown, the 2oC pathways represent a stark and fairly rapid transition from the baseline scenarios, while also illustrating significantly different emission trajectories toward a 2oC ambition.

Many experts developed scenarios to reduce global CO2 emissions consistent with an atmospheric GHG concentration (450 ppm CO2e in 2100) consistent with a 2oC pathway. The chart above shows potential indicative pathways based on results of 13 models.

Energy and CO2 emissions intensity pathways

It is generally accepted that population and world economies will continue to grow, and that measures to address the risks of climate change should accommodate these factors. Therefore, across any reasonable range of pathways, two other factors remain critical to limiting CO2 emissions:

  1. Reducing the energy intensity of economies (i.e., being more energy efficient), and
  2. Reducing the CO2 emissions intensity of the global energy mix.

In this regard, the chart above illustrates the gains expected for both parameters under the Assessed 2oC Scenarios from 2010 to 2100, along with ExxonMobil’s 2018 Outlook for 2010 to 2040. The Outlook projects progress on both parameters to 2040, with generally greater progress on energy intensity gains compared to the other pathways.

These pathways imply that two things must happen. First, countries need to be more efficient in how they use energy (left axis)… and second, they need to use energies or technologies that reduce CO2 emissions for every unit of energy they use (bottom axis).

World energy-related CO2 emissions relative to energy intensity and CO2 emissions intensity

The chart above shows global energy intensity (left axis) and CO2 emissions intensity (bottom axis).

From 1980 to 2015, there were large gains in efficiency, though energy-related CO2 emissions rose from 18 to 33 billion tonnes. The blue circle shown for 2040 indicates these emissions are projected to be about 36 billion tonnes even with significant gains in efficiency and CO2 emissions intensity.

The chart also illustrates a range of 2040 “performance levels” reflecting hypothetical combinations of global energy intensity and CO2 emission intensity levels that, if reached in 2040, might indicate the world was on a 2oC pathway. Even with the significant progress on energy and CO2 emissions intensities envisioned by 2040 in the 2018 Outlook, it is estimated that there remains a significant gap to reach performance levels in 2040 that are indicative of 2oC pathway.

To be on a 450 ppm, or hypothetical 2oC, pathway, the performance in 2040 likely needs to be significantly closer to the purple line, implying faster gains in efficiency and/or faster reductions in CO2 emissions per unit of energy.

This chart helps provide some historical context for the projected progress on these important parameters from 1980 through 2040 based on the 2018 Outlook. From 1980 to 2015, progress to slow the growth in energy-related CO2 emissions was made primarily through energy efficiency gains. Despite those gains over 35 years, emissions rose from about 18 billion tonnes to about 33 billion tonnes. From 2015 to 2040, further gains in efficiency and CO2 emissions intensity will be significant, helping slow global energy-related CO2 emissions so that they will likely peak before 2040. However, they are projected to be twice the level of 1980 and about 10 percent above the 2016 level in 2040.

In summary, transitioning toward a 2oC pathway, as suggested by the range of related 2040 performance levels shown on the chart, would imply that global emissions peak and steadily fall to close to 1980 levels by 2040. This is daunting, considering the global population may be twice as large, and the world’s economy may be five times as large by 2040 versus 1980 levels.

Key takeaways considering 2oC scenarios

2040 global demand by model by energy type in the Assessed 2oC Scenarios

The review of the Assessed 2oC Scenarios relative to the 2018 Outlook suggest several key takeaways:

  • To quickly reduce global GHG emissions (including CO2) toward a 2oC pathway, much more stringent policy interventions, with restrictive impacts on economic and human activities, will be needed.
  • Reducing the CO2 emissions intensity of the world’s energy mix remains challenging; the Assessed 2oC Scenarios generally include significant reductions in coal and growing utilization of carbon capture and storage (CCS) technologies for coal, natural gas and bioenergy. The cost-effective availability and deployment of many different technologies is likely to be critical to ensure reliable, affordable energy while also moving toward a 2oC pathway.
  • To close the gap, and barring a reduction in projected GDP, much faster improvements in energy intensity and/or CO2 emissions intensity are required to achieve a 2oC pathway. As the chart above illustrates, the Assessed 2oC Scenarios suggest that predicting absolute 2040 energy demand levels in total and by energy type carries significant uncertainty, and further suggest that scenario outcomes may be heavily influenced by technology and policy assumptions.

Potential energy implications considering 2oC scenarios

Ranges of predicted changes in global demand in Assessed 2oC Scenarios

The Assessed 2oC Scenarios produce a variety of views on the potential impacts on global energy demand in total and by specific types of energy, with a range of possible growth rates for each type of energy (above chart). Since it is impossible to know which elements, if any, of these models are correct, we used an average of all 13 scenarios to approximate growth rates for the various energy types as a means to estimate trends to 2040 indicative of hypothetical 2oC pathways.

On a worldwide basis, based on the average of the Assessed 2oC Scenarios’ growth rates, primary energy demand is projected to increase about 0.5 percent per year on average from 2010 to 2040. Expected changes in demand vary by energy type by model. Based on the average of the growth rates:

  • Oil demand is generally projected to decline about 0.4 percent per year.
  • Natural gas demand is expected to increase about 0.9 percent per year.
  • The outlook for coal is the most negative, with diverse projections showing an average decline of about 2.4 percent per year, or about a 50 percent decline by 2040.
  • The average annual growth rates for renewable energies and nuclear are generally quite strong, averaging between 4 and 4.5 percent for nonbioenergy (e.g., hydro, wind, solar) and bioenergy, and about 3 percent for nuclear.

This chart illustrates model results of the 13 scenarios showing how energy demand is projected to grow or decline by energy type through 2040.

All energy sources remain important across all 13 scenarios though the mix of energy and technology shifts over time. Oil and natural gas remain important energy types across all 13 scenarios, with oil demand projected to decline modestly, and much more slowly than its natural rate of decline from existing fields, and natural gas demand growing due to its many advantages.

Potential investment implications

Global liquids supply estimates

Global natural gas supply estimates

Using the growth rates from the Assessed 2oC Scenarios and a standard baseline for 2010 demand, oil demand is estimated to decline on average from about 95 million barrels per day in 2016 to about 78 million barrels per day in 2040.

Using the same approach for natural gas, demand is estimated to increase on average to about 445 billion cubic feet per day in 2040. Based on the low and high end growth rates, estimated demands ranges from about 265 to 625 billion cubic feet per day in 2040.

Significant investments will be needed in the upstream sector to meet global demand for oil and natural gas. This reflects the fact that natural declines in production from existing fields are higher than a decline in demand, such as is envisioned for oil on average in the Assessed 2oC Scenarios. A large portion of the investments would be needed simply to compensate for the declines at existing fields.

The International Energy Agency, in its New Policies Scenario, estimates cumulative oil and natural gas investment may reach approximately $21 trillion between 2017 and 2040, including about $15 trillion in the upstream sector, with about $10 trillion in the upstream oil sector.

Seeking practical solutions

Billions of people still lack access to modern energy and technology as they struggle to improve their living standards and reduce the negative health impacts of energy poverty, while billions of others enjoy the conveniences of modern life. Awareness of this enduring disparity is a reminder of the need to expand access to reliable, affordable energy for all, even as parties around the world pursue common ambitions to improve the environment and address the risks of climate change.

Effectively managing the risks of climate change will require practical, cost-effective solutions. Opportunities exist worldwide across all sectors to improve efficiency and reduce energy-related emissions. As noted earlier, these solutions are expected to focus on improving energy intensity or efficiency of economies, as well as reducing the carbon intensity of the world’s energy mix.

Boosting energy efficiency

To pursue a 2oC pathway to address the risks of climate change, the need for efficiency gains is likely to ramp up significantly, meaning that capturing the most cost-effective efficiency gains will become even more important in order to spare society an unnecessary economic burden associated with high-cost options to reduce emissions.

Boosting efficiency while meeting essential needs for products and services and supporting standard of living improvements will require effective investments and sound policies to promote them. Opportunities to boost efficiency are many and varied, ranging from better equipment (e.g., transportation vehicles, appliances) to electrical distribution networks to better insulation in buildings. Gains are also likely in systems affecting how people live or how businesses operate. Importantly, not all of the same mechanisms apply across all energy sectors.

Shifting the energy mix

Shifting the CO2 emissions intensity of the energy mix to lower levels, while keeping energy reliable and affordable, also requires investment, with an eye toward opportunities for using less carbonintensive energy sources to meet needs across the range of demand sectors. For example, while bioenergy could be used across all sectors, nuclear energy is limited to the power generation segment.

Energy demand sectors

The table above highlights a likely distribution of technologies and other efforts across various energy demand sectors to boost efficiency and lower the CO2 emissions intensity of energy use.

Adopting policies to promote cost-effective solutions

To help speed the application of practical and cost-effective solutions across the entire energy system, open and informed discussions will help clarify the potential and relative value of available options. Further, policy frameworks that promote better transparency on the costs and benefits of various options and rely on market-based solutions should be pursued. As the IEA has noted, clear price signals have advantages, including that “higher prices stimulate consumers to reconsider their energy consumption and make savings where this can be done most cheaply, whereas regulation through mandatory standards may not be the least-cost or most effective approach.” 10

The long-term nature of the climate challenge promises an evolution of available solutions. Therefore, policies that promote innovation and flexibility afforded by competition and free markets will be critical to ensuring the world pursues the most cost-effective opportunities.

Investing in research and development to advance technology

Ongoing research and development to spark technological advances will also be important to help minimize the costs of reducing emissions. This will preserve limited financial resources for other needs, including helping to ensure universal access to reliable and affordable energy.

Technology key to reducing societal costs of 2oC pathway

Advancing the application of cost-effective technology solutions around the world will likely be critical to pursue a 2oC pathway, while helping keep energy reliable and affordable for an expanding population. As the chart above shows, expanding technology options through ongoing research and development efforts remains important to accelerate the options that can play a role in meeting people’s energy needs while reducing the risks of climate change. Such technologies include those related to carbon capture and storage (CCS), advanced biofuels and battery technology. Without robust development of such technology options, the stringency of policies and their related costs to society will prove more burdensome. 

Keeping options open

Transformation of the world’s energy system as envisioned by a 2oC scenario is unprecedented. Therefore, it is understandable that governments, businesses and individuals exercise care in weighing its potential implications. A key consideration is the significant value for society in not prematurely foreclosing options or negating reliable, affordable and practical energy systems that billions of people depend upon.

Practical solutions to the world’s energy and climate challenges will benefit from market competition as well as well-informed, well-designed and transparent policy approaches that carefully weigh costs and benefits. Such policies are likely to help manage the risks of climate change while also enabling societies to pursue other high priority goals around the world – including clean air and water, access to reliable, affordable energy, and economic progress for all people.

Sources
  1. http://unfccc.int/paris_agreement/items/9485.php
  2. EMF was established at Stanford in 1976 to bring together leading experts and decisionmakers from government, industry, universities, and other research organizations to study important energy and environmental issues. For each study, the Forum organizes a working group to develop the study design, analyze and compare each model’s results and discuss key conclusions. https://emf.stanford.edu/about. EMF is supported by grants from the U.S. Department of Energy, the U.S. Environmental Protection Agency as well as industry affiliates including ExxonMobil. https://emf.stanford.edu/industry-affiliates
  3. Energy demand as used in this Outlook refers to commercial and non-commercial energy (e.g., traditional biomass) consumed as a fuel or used as a feedstock for the production of chemicals, asphalt, lubricants, waxes and other specialty products. Coal demand includes metallurgical coal. Gas demand includes flared gas. To avoid double counting, derived liquids (e.g., from gasto-liquids) and synthetic gas (e.g., from coal-to-gas) are only accounted for in their final form (i.e., liquid or gas) and not in the energy type from which they were derived (i.e., gas or coal). The fuel and loss involved in the conversion process is accounted
    for in the energy industry sub-sector.
  4. Taking action to address climate change and its impacts is also one of the United Nations’ 17 Sustainable Development Goals.
  5. UNFCCC, Aggregate effect of the intended nationally determined contributions: an update, page 12, http://unfccc.int/focus/indc_portal/ items/9240.php
  6. Ibid, page 10: “Compared with global emission levels in 1990, 2000 and 2010, global aggregate emission levels resulting from the INDCs are expected to be higher by: 40 (33-47) per cent in 2025 and 44 (34-53) per cent in 2030 in relation to the global emission level in 1990; 35 (28-41) per cent in 2025 and 38 (29-47) per cent in 2030 in relation to the global emission level in 2000; and 13 (7-19) per cent in 2025 and 16 (8-23) per cent in 2030 in relation to the global emission level in 2010.”
  7. IEA, Perspectives for the Energy Transition, page 57
  8. To understand some of the characteristics of future transition pathways, we analyzed energy and emissions data from a range of EMF27 stabilization, policy and technology targets, primarily focusing on 450 and 550 stabilization targets, as well as no policy cases that utilize a full suite of technologies. The suite of full technologies (FT) includes a range of options, including: energy efficiency, nuclear, carbon capture and storage (CCS), biofuels and non-bio renewables such as solar and wind. The EMF27 study considered other technology-limited scenarios, but a key finding was that the unavailability of carbon capture and storage and limited availability of bioenergy had a large impact on feasibility and cost. Given the potential advantages to society of utilizing all available technology options, we focused on capturing the results of different EMF27 models that ran 450-FT cases; we were able to download data for 13 such scenarios, and utilized that data as provided for analysis purposes (most of the scenarios had projections extending to 2100). Data downloaded from: https://secure.iiasa.ac.at/web-apps/ene/AR5DB
  9. Based on average Assessed 2oC Scenarios CO2 emissions (~20 billion tonnes including energy and industrial processes); ExxonMobil GDP assumptions consistent with 2018 Outlook.
  10. IEA, World Energy Outlook 2016, page 290
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