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Page added on October 29, 2022
Fossil fuels to peak this decade as new world energy order takes shape
For the first time, global demand for each of the fossil fuels shows a peak across all World Energy Outlook scenarios, with Russian exports, in particular, falling significantly as the world energy order is reshaped.
This is one of the key findings in the International Energy Agency’s (IEA) World Energy Outlook 2022 report (WEO), released amidst what has been hailed as the first truly global energy crisis.
Fossil fuel peak
For the first time ever, a WEO scenario based on today’s prevailing policy settings has global demand for every fossil fuel exhibiting a peak or plateau. In the Stated Policies Scenario, coal use falls back within the next few years, natural gas demand reaches a plateau by the end of the decade, and rising sales of electric vehicles (EVs) mean that oil demand levels off in the mid-2030s before ebbing slightly to mid-century.
This means that total demand for fossil fuels declines steadily from the mid-2020s to 2050 by an annual average roughly equivalent to the lifetime output of a large oil field.
The share of fossil fuels in the global energy mix in the Stated Policies Scenario falls from around 80% to just above 60% by 2050.
IEA’s executive director Fatih Birol said at the report launch, “It’s the first time since the Industrial Revolution that we will see a fossil fuel peak in the 2030s.”
While energy markets remain extremely vulnerable, especially for natural gas, coal and electricity, long terms actions from governments around the world are accelerating positive change. Examples of these positive policy steps can be seen in the US Inflation Reduction Act and Europe’s RePowerEU package.
Policies and investments
Stronger policies will be essential to drive the huge increase in energy investment that is needed to reduce the risks of future price spikes and volatility, according to this year’s WEO.
While clean energy investment rises above $2 trillion by 2030 in the States Policies Scenario, it would need to be above $4 trillion by the same date in the Net Zero Emissions by 2050 Scenario, highlighting the need to attract new investors to the energy sector.
And major international efforts are still urgently required to narrow the divide in clean energy investment levels between advanced economies and emerging and developing economies.
“Clean energy investments today [total] $1.3 trillion and will, with current policies, reach $2 trillion…But if we want to reach our net zero [and 1.5°C] goals, our investment target needs to double and reach $4 trillion,” emphasised Birol.
Energy efficiency and sector transformation
According to the Outlook, investments in clean electricity and electrification, along with expanded and modernised grids, offer clear and cost‐effective opportunities to cut emissions more rapidly while bringing electricity costs down from their current highs.
Today’s growth rates for the deployment of EVs and batteries, if maintained, would lead to a much faster transformation than projected in the STEPS, although this would require supportive policies not just in the leading markets for these technologies but across the world.
By 2030, if countries deliver on their climate pledges, every second car sold in the EU, China and the US will be electric.
Supply chain expansion and energy prices
Supply chains for some key technologies, including batteries, are expanding at rates that support higher global ambition.
In the EV sector, the expansion of battery manufacturing capacity reflects the shift underway in the automotive industry, which at times has moved faster than governments in setting targets for electrified mobility.
Today’s high energy prices underscore the benefits of greater energy efficiency and are prompting behavioural and technological changes in some countries to reduce energy use.
Efficiency measures can have dramatic effects – today’s light bulbs are at least four times more efficient than those on sale two decades ago – but much more remains to be done.
Demand for cooling needs to be a focus for policymakers, as it makes the second‐largest contribution to the overall rise in global electricity demand over the coming decades, after EVs.
Many air conditioners used today are subject only to weak efficiency standards and one‐fifth of electricity demand for cooling in emerging and developing economies is not covered by any standards at all.
A new energy order
The report dispels the myth that the energy crisis has been caused by a shift to clean energy, but does emphasise that the current crisis situation will ultimately spur progress to a new, cleaner energy system.
“Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for the time being, but for decades to come,” said Birol. “Even with today’s policy settings, the energy world is shifting dramatically before our eyes. Government responses around the world promise to make this a historic and definitive turning point towards a cleaner, more affordable and more secure energy system.”
Commenting on this report in a statement, Sushil Purohit, president of Wärtsilä Energy and EVP of Wärtsilä, said: ”Today’s IEA World Energy Outlook report demonstrates that we have reached a tipping point – now is the time to increase our ambition and accelerate towards net zero. From replacing inflexible coal‐fired power plants with agile balancing engines, to integrating more hydrogen and energy storage onto the grid, the pathway to net zero needs to prioritise flexible technologies that do not compete with renewables for the limelight. Like backing singers in the band, flexible solutions must support the star of the show – renewable energy.”
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