Is the world in the midst of an accelerating migration away from fossil fuels toward much greater reliance on carbon-free energy? If one takes seriously the speeches of many politicians or the content found on the websites of environmental advocacy organizations, the temptation is to answer “yes.” The reality, however, is more complex.
Important shifts in energy production and use are underway, but the magnitude and timing of any overall global “energy transition” are apt to be less dramatic than many believe. Growing energy demand, the vast scale of the world’s existing energy system, and the tens of trillions of dollars of embedded capital that underpin it all stand in the way of rapid change.
That said, there is evidence of an incremental move away from fossil fuels as a primary energy source, in favour of low/no-carbon forms of energy. However, because energy demand will be increasing and natural gas use is expected to double by 2040, this does not necessarily equate to an absolute reduction in the quantity of fossil fuels in the global energy system in the short to medium term.
Supply and demand forecasts
The latest projections from the International Energy Agency (IEA) and the United States Energy Information Administration paint a similar picture of the energy landscape to 2040.
•Global energy demand continues to increase, despite the diminishing “energy-intensity” of each dollar of economic output in the advanced economies. In the IEA’s baseline forecast, total energy consumption climbs by 37% to 2040.
•On the supply side, by the late 2030s the world’s primary energy system is expected to consist of four roughly equal-sized components: oil, natural gas, coal and low/no-carbon sources. Renewables occupy a progressively larger place in the mix. But the IEA estimates that in 2035 fossil fuels still satisfy three-quarters of the world’s energy needs.
•Energy demand flatlines or falls in many advanced economies, while consumption marches steadily higher in the emerging economies.
Effect of technology
Technological innovation has always influenced energy markets, and it has proven to be especially disruptive over the past few years. Three important developments are the shale oil and gas revolution, technical advances in distributed power generation and falling costs for solar energy. These trends are reshaping the competitive landscape for certain forms of energy.
An often overlooked point is that if technological innovations cause the prices for oil and natural gas to remain low, this should stimulate demand, offsetting some of the efforts being directed at reducing carbon-based energy use to address concerns over climate change. The prospect of lower-for-longer fossil fuel prices also complicates the economics surrounding other forms of energy, such as nuclear, wind and biomass. Slumping prices for oil and thermal coal already seem to be fostering a rise in the use of these fuels in parts of Europe and in some emerging economies.
In the electricity sector, technological innovations have led to plunging prices for solar power and promising advances in distributed generation, which in turn are supporting the speedy adoption of photovoltaic installations in a number of jurisdictions.
Technology offers the promise of a smaller carbon footprint. Government policies to put a “price” on carbon emissions, improve energy efficiency and foster fuel-switching can also help. But if the global-level energy supply/demand projections from the IEA and the U.S. government turn out to be even approximately accurate, it is problematic to speak of a rapid “energy transition” – certainly if the term is taken to imply the near-replacement of the existing world energy system with a different system, within the span of two or three decades. Instead, it makes more sense to think of a future in which more fuel-switching occurs and a rising share of global energy demand growth is met through renewables and other lower-carbon sources.
Jock Finlayson is executive vice-president and chief policy officer of the Business Council of British Columbia.
