World heading for a 3-degree C warming trajectory, as political headwinds slow
the energy transition
WoodMac report looks at the implications of a delayed energy transition, amid
political uncertainties, inflation and elections across the world
LONDON, 02 May 2024 - A five-year delay to the energy transition could see the
global average temperature rise to 3-degree Celsius above pre-industrial levels,
according to Wood Mackenzie's latest analysis: 'A delayed energy transition'.
Wood Mackenzie's delayed energy transition scenario, which analysed the impact a
five-year delay might have on global decarbonisation efforts, expects annual
average spending to fall to US$1.7 trillion. This is 55% lower than Wood
Mackenzie's net zero 2050 scenario*, which maps out what's required to meet the
Paris Agreement targets.
In terms of total investment, a delayed transition could cost up to US$48
trillion, a significant decrease from Wood Mackenzie's net zero scenario, which
estimates a total of US$75 trillion. The oil and gas sector CAPEX rises to 31%,
as power sector spending is expected to remain at its current level of 60%, in a
delayed transition. Spending could fall to under 10% in the net zero scenario if
the power sector gets 80% of total spend.
For metals and mining sectors, CAPEX is the most resilient and remains around
6% of the total cross all scenarios. In contrast, despite their key role in the
overall energy transition, investment into hydrogen and carbon, capture,
utilisation, and storage (CCUS) drop to 2%, compared to 8% in Wood Mackenzie's
net zero scenario.
"With half of the global population heading to polls in 2024, political
realities and climate scepticism in the major emitting countries, such as the US
and Europe, could reduce the support for the transition as voters seek economic
security and price stability," said Prakash Sharma
(https://www.woodmac.com/profiles/people-profiles/prakash-sharma/), Vice
President, Scenarios and Technologies at Wood Mackenzie, and author of the
report.
"The global stocktake (https://www.woodmac.com/news/opinion/cop28-global-
stocktake/) at COP28 in December 2023 also confirmed that no major country was
on track to meet the Paris aligned commitments and that strong policy action and
capital investment were necessary to accelerate the transition. Indeed, Europe
and the UK have already pushed back 2030 climate goals and other countries may
follow suit," Sharma added.
According to the scenario, emissions are expected to peak in 2032 and the
remaining carbon budget for a 1.5 ?C world will be used up by 2027, further
weakening countries' ability to deliver the Paris Agreement goals in time by
2050.
Renewables-led electrification looks increasingly more challenging, in Wood
Mackenzie's delayed scenario. Solar and wind dominate power markets in the
longer term, but near-term additions are slowed due to transmission bottlenecks.
Unabated thermal supply provides much of the flexible generation to balance
power grids.
Higher interest rates and supply chain bottlenecks raised renewables costs by
10% to 20% in recent years (https://www.woodmac.com/press-releases/2024-press-
releases/renewables-and-nascent-low-carbon-technologies-most-exposed-to-high-
interest-rates/). Expensive renewables costs will further delay low-carbon
hydrogen cost declines, reducing demand to 100 million tonnes (Mt) in 2050,
nearly 50% lower than the base case.
A slower transition means carbon capture and removal technologies would need to
play a dominant role in restoring the carbon balance and achieving long-term
climate goals. CCUS uptake reaches 225 Mt by 2030 in Wood Mackenzie's delayed
transition and continues to scale as policy incentives expand and storage
infrastructure is built.
In the delayed transition scenario, oil demand peaks at 114 million barrels per
day (mb/d) in 2033, nearly 6 mb/d higher than the base case due to slower
electric vehicle (EV) adoption outside China. Gas demand peaks at 4,536 billion
cubic meters of natural gas (bcm) in 2045, nearly 100 bcm higher than the base
case. Meanwhile coal demand falls slowly, keeping a 3% higher trajectory than
the base case in this decade.
"Lower renewables and hydrogen production create headroom for additional gas
demand growth, but coal's resilience limits upside. Commodity markets look
tighter and volatile for longer unless investment in supply picks up," Sharma
said.
ENDS
Editor's Notes:
This report is part of Wood Mackenzie's Energy Transition Outlook
(https://www.woodmac.com/press-releases/energy-transition-outlook-2023/) series.
Wood Mackenzie published its most recent base case outlook in September 2023.
Since then, the risks of delays in the transition to low-carbon energy have
grown, particularly because of shifts in policy and politics in several key
economies. As a result, we are publishing here a Delayed Energy Transition
scenario, looking at the implications of a five-year delay to global
decarbonisation efforts.
Scenario definitions*:
* Base case - Wood Mackenzie's base case view across all commodity and
technology business units - our central, most likely outcome.
* Country pledges scenario - Wood Mackenzie's scenario on how country pledges
may be implemented in the future. The 2?C trajectory aligns with the upper
temp limit from the Paris Agreement.
* Net zero 2050 scenario - Wood Mackenzie's scenario on how a 1.5?C world may
play out over the next 30 years. Carbon emissions align with the most
ambitious goal of the 2015 ?Paris Agreement.
* Delayed energy transition scenario - the implications of a five-year delay
to global decarbonisation efforts modelled in the base case.
Relevant news and commentary
* Press release: New Wood Mackenzie analysis warns world heading for 2.5C
global warming without immediate action (https://www.woodmac.com/press-
releases/energy-transition-outlook-2023/)
For further information please contact:
Vivien Lebbon, T: +44 330 174 7486, E: Vivien.lebbon@woodmac.com
(mailto:Vivien.lebbon@woodmac.com)
About Wood Mackenzie
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