The world is on the cusp of a new era of electricity, with fossil fuel demand expected to peak by the end of this decade, according to a new energy outlook report (pdf) from the International Energy Agency (IEA). The shift could result in surplus oil and gas supplies, potentially driving more investments into green energy. Uncertainties due to ongoing conflicts in the oil and gas-producing regions of the Middle East and Russia still remain, as well as upcoming elections in countries that account for half of global energy demand.

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The report’s metrics: The three primary scenarios mentioned in the report explore the potential impacts of renewables, EVs, LNG, heatwaves, efficiency measures, and AI on electricity demand. These scenarios and analyses outline various potential energy trajectories, the choices available to policymakers, and the implications for energy markets, security, and emissions:

  • The Stated Policies Scenario (STEPS) offers insights into the current trajectory of the energy sector based on recent market trends, technology costs, and current global policy frameworks.
  • The Announced Pledges Scenario (APS) evaluates the potential outcomes of achieving all national energy and climate targets, including net-zero commitments, in full and on time.
  • The Net Zero Emissions by 2050 Scenario (NZE) maps out the narrow pathway to reach net zero emissions by mid-century and limiting global warming to 1.5 °C.

Clean energy is making strides: The agency reported a record-high level of clean energy coming online globally last year, with over 560 GW of renewable power capacity added. Around USD 2 tn is expected to be invested in clean energy in 2024, nearly double the amount invested in fossil fuels. As clean technology costs continue to decline after a pandemic-related increase, renewable power capacity could grow from 4.25 TW to nearly 10 TW by 2030 in the STEPS scenario. While this falls short of the COP28 target, it's substantial enough to meet rising global electricity demand and phase out coal-fired generation. Combined with a renewed interest in nuclear power, low-carbon sources are poised to account for half of the world's electricity by 2030.

The world can transition faster: Abundant clean energy manufacturing capacity — mainly in solar — offers potential for accelerated progress. However, this requires addressing imbalances in current investment flows and supply chains. For example, solar’s annual manufacturing capacity is set to increase sixfold to exceed 1.1 TW by 2030, and if this capacity is fully translated into on-ground projects, the 2050 Net Zero target could be attainable.

Energy mix meeting the energy demand: Over the last decade, the world saw 15% increase in overall energy demand, and clean energy sources covered 40% of this growth. Fossil fuels slightly dropped in the global energy mix, from 82% in 2013 to 80% in 2023. But clean energy adoption would accelerate as global energy demand growth moderates in the STEPS scenario. This would lead to a peak in all three fossil fuels before 2030. Coal consumption will decline, surpassed by natural gas in the global energy mix by 2030. Clean energy, primarily driven by solar PV and wind power, is set to outpace the growth in total energy demand between 2023 and 2035 and become the dominant energy source in the mid-2030s.

Renewables could have a bigger share by mid-century: While the STEPS scenario foresees a threefold increase in renewables by 2050, reducing fossil fuel use from 80% of energy demand to 58%, which is too slow compared to the drops in the APS and NZE scenarios. By 2035, clean energy would account for 40% of global energy demand in the APS, rising to nearly three-quarters by 2050. In the NZE Scenario, clean energy will reach 90% of total energy demand by 2050. The remaining fossil fuel demand would either be fully abated, used for non-energy purposes or offset through carbon removal technologies.

Less oil, more renewables for the region: Five out of 12 Middle Eastern countries have committed to net zero by around 2050 with a planned 16 tons of CO2 annual operational carbon capture capacity by 2030. In the STEPS scenario, energy demand will increase by 25% by 2035, while the share of oil and natural gas falls to 92% from 98%. The APS scenario sees similar energy demand growth but a bigger decline in oil and natural gas use, reaching 85%. Meanwhile, renewable generation, primarily from solar PV, increases tenfold during this period in the STEPS and twentyfold in the APS scenario.

Renewables capacity could soar in the region by 2035: Clean energy investment in the region is projected to grow from USD 26 bn in 2023 to USD 63 bn in the STEPS scenario and USD 137 bn in the APS scenario by 2035. Solar PV and wind generation jump significantly, from around 30 TWh in 2023 to 430 TWh in 2035 in the STEPS scenario, displacing oil with Saudi Arabia and the UAE leading the way. Natural gas demand and supply are also increasing in the STEPS scenario, though tempered by renewable growth in the APS scenario.

The potential to electrify industries: By 2050, electricity's share in consumed energy in industries will increase by half in the STEPS scenario, double in the APS scenario, and nearly triple in the NZE scenario. Alongside direct renewable energy use and low-emissions fuels, unabated fossil fuels decline by 30% in the STEPS scenario, around 65% in the APS scenario, and 95% in the NZE scenario. In hard-to-abate sectors like aviation and shipping, biofuels and low-emissions fuels displace around 50 EJ of fossil fuels by 2050 in the NZE scenario.

CCUS is among the Middle East’s priorities: The Middle East possesses substantial geological potential and technical expertise for large-scale CCUS deployment. The oil and gas industry is leading the way, with Saudi Arabia planning the biggest CCUS hub. Total CCUS capacity in the region is projected to exceed 30 mn tons of CO2 by 2035 in the STEPS with the potential for much faster growth in the APS at 100 mn tons by 2035.

What about EVs? EVs currently make up around 20% of new car sales globally. In the STEPS scenario, EVs will comprise half of total car sales in 2030, displacing approximately six mn barrels per day of oil demand. However, a slower EV adoption rate, with market share remaining below 40% by the end of the decade, could reduce the 2030 projected drop in oil demand by 1.2 mn barrels per day.

COP28’s pledge to triple renewables by 2030 is still far: Renewable energy capacity would expand from 4.25 TW to over 9.75 TW in the STEPS scenario, 10.9 TW in the APS, and 11.5 TW in the NZE scenario. While significant, these gains all fall short of the pledge to triple renewables capacity. By 2030, the share of renewable electricity generation will increase from 30% to 45% in the STEPS scenario, 50% in the APS scenario, and nearly 60% in the NZE scenario, reducing cumulative emissions by 1.5, 3, and 4.5 gigatons of CO2, respectively.

Emissions will drop, but essential temperature targets might be missed: CO2 emissions peak in all scenarios before 2030, but the decline rate varies significantly. In the STEPS scenario, emissions decrease 1% annually, led by China's 3% annual reduction. The APS scenario sees a 4% annual decline, while the NZE scenario achieves a 15% annual reduction. In a STEPS world, there would be a 2.4°C temperature increase by 2100. The APS scenario suggests a 1.7°C rise, while the NZE scenario presents a path to limit warming below 1.5°C.

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