On COP28 Eve, Rystad’s Ten Steps To A Faster Energy Transition

The Abu Dhabi meet of COP28 might have surprised many with its choice of venue and chair, but there is no doubt that the whole world needs to somehow pull together to make meaningful progress on the issue. The Oil and Gas sector in particular needs to change its orientation from lying and postponing to real investments into mitigation and in clean energy.

With a fair degree of skepticism barely lifted by hopes of some real movement on the pace of global efforts needed to limit climate warming and change, these suggestions on the eve of COP28 repeat the expected. But they still need to be said again, as no better options have been proposed.

“Recent energy and climate policy trends reflect a shift towards protectionism, with a growing emphasis on sovereign energy. This shift focuses on promoting domestic industry, reducing reliance on international trade, attracting investments and creating local jobs, as well as controlling the supply chain. To navigate this transition effectively, it is essential for the global community to avoid moving further down the energy pyramid due to conflicts that may arise from energy security concerns,” says Lars Nitter Havro, senior clean tech analyst at Rystad Energy.

“We have identified 10 steps that can significantly accelerate the world’s energy transition while keeping the most ambitious goals of the Paris Agreement within reach. These steps aim to target low-hanging and impactful decarbonization options that can speed up renewable deployment, enhance energy efficiency, address market failures and incentivize the investments necessary to achieve net-zero emissions,” affirms Jon Hansen, global energy systems vice president at Rystad Energy.

Energy Transition Cycle

 

1.Fast-track renewable developments
The supply chain is primed and ready to expand developments quickly, but the rollout needs to pick up speed. Permitting times need to be shortened, and short-term financing barriers like high interest rates need to be mitigated if new capacity is going to hit its required target by 2030.

According to our latest modeling, global renewable capacity needs to increase from about 3.6 terawatts (TW) last year to nearly 11.2 TW by 2030 to meet a 1.6-degree global warming scenario. Solar PV will account for about 65% of this required expansion, but more work is needed before the world is on that pathway. Based on existing projects, policies and industry trends, global renewable generation capacity will reach only 8 TW by 2030 and will not hit 11.2 TW until 2034 at the earliest.

To accelerate renewable developments, permitting reform in the West, policy support in Asia and optimization of the global solar supply chain are needed. Additionally, Contracts for Difference (CfDs) in high renewable penetration markets can mitigate the financial risks of price cannibalization, thereby fostering stable investment in renewable energy projects.

 

2.Double down on energy efficiency
Out of the 500 exajoules (EJ) of primary energy from fossil fuels, only 250 EJ is ultimately used. If solar, wind or hydro are the primary energy source, about 440 EJ would be available to the end user.

When molecules are burned to produce electricity or motion, only 30-50% of the chemical energy is converted to useful energy. The remaining energy is lost as heat to the environment. In contrast, with renewable energy sources like solar or wind, 70-90% of the primary energy is available for the end user, even after accounting for storage and distribution. Heat pumps in industry and buildings enable much more efficient heat generation than traditional electric radiators. Therefore, transitioning from fossil fuels to renewables would lead to a revolution in energy efficiency.

Furthermore, energy efficiency improvements in buildings, appliances and machines have increased by one percent per year over the last few decades due to better materials and design. However, this trend needs stronger regulations and policy incentives to accelerate to the levels required to align with the most ambitious climate scenarios.

3. Meaningful action on methane
Methane is responsible for 15-20% of global greenhouse gas emissions but reducing methane emissions is often overlooked in net-zero strategies. Methane is at least 25 times more potent than carbon dioxide (CO2) as a greenhouse gas, so clear targets, monitoring, penalties for non-compliance and methane capture incentives are paramount.

Agriculture, particularly livestock, and landfills are significant sources of methane emissions. Supporting investments in emerging agriculture technologies like cellular agriculture and precision fermentation can significantly reduce emissions from livestock. Additionally, promoting landfill gas capture and anaerobic digestion can turn these emissions into energy or hydrogen, reducing methane release into the atmosphere.

The oil and gas sector also significantly contributes to methane emissions, primarily from production and transportation infrastructure leaks. Implementing best practices for regular and advanced leak detection, followed by timely repairs, minimizing flaring and accelerating deployment of modern air pneumatics can significantly reduce emissions.

 

4. Put a price on carbon
A gradual maturation of the value of carbon will send a powerful financial signal to polluters to reduce emissions. This is particularly important in hard-to-abate sectors, where a carbon price directly influences the adoption rate of clean technology. For instance, in the cement sector, the business case for using carbon capture, utilization and storage (CCUS) is strengthened by a value on carbon.

Currently, CCUS is costly, but chemical absorption process advancements are expected to significantly lower costs in the coming years. Chemical absorption is leading the way in CCUS technology adoption within the cement sector, accounting for 32% of announced technology in upcoming projects, including a project led by Heidelberg Cement, which aims to capture 400,000 tonnes per annum.

 

5. Scale up clean tech investments
Clean tech investments, including solar and wind, will surpass oil and gas investments by 2025. However, it is crucial to accelerate the process, particularly in emerging countries and technologies, such as green hydrogen.

In 2023, 70% of low-carbon investments were made in eight countries, with 50% in China and 20% spread across the G7 countries. The remaining 30% were made mainly in developed economies, except for India, which accounted for 2.5% of global low-carbon investments. Therefore, it is essential to stimulate early market demand for low-carbon products in emerging economies by investing in mature end-user technologies that can boost demand for electrification and clean technologies.

 

6. Optimize grid utilization
The limitations of power grids often hold back renewable energy sources. It is commonly believed that integrating new variable renewable energy requires massive investments in grid infrastructure, but that is inaccurate. Only 40-50% of grids are actively utilized, so increasing grid efficiency could significantly reduce the required new capacity.

By implementing existing and affordable technologies such as topology optimization and dynamic line ratings, transmission capacity can be increased by 30-40% and 20%, respectively. This would significantly enhance grid resilience, flexibility and efficiency. In addition, robust energy storage solutions could manage demand spikes during heat waves and cold snaps.

7.Embrace electrification of road transport
The shift to electric vehicles (EVs) is crucial to reduce our dependency on fossil fuels. Road transport alone accounts for 19% of global final energy demand and 15% of global CO2 emissions. To be on track for a 1.6-degree warming scenario, an ambitious but achievable target of 70% EV penetration should be set.

To facilitate an accelerated transition in the sector, financial incentives like the US Inflation Reduction Act’s $7,500 subsidy per vehicle are crucial, as well as expanding the charging network.

8. Reduce, reuse, recycle
The circular economy is critical for an efficient decarbonization strategy. Reusing materials, like repurposing EV batteries for stationary energy storage, and significantly increasing recycling rates are essential. Without specific actions and supportive policies, opportunities for sustainable industry practices may be missed.

Recycling is particularly crucial for hard-to-abate sectors like steel production. Primary steel production emits 2.3 tonnes of CO2 per tonne of steel, while recycled steel produces only 680 kg of CO2 per tonne, resulting in a 70% reduction in emissions. This highlights the critical role of recycled steel in environmental sustainability, and policymakers should take note.

 

9. Cut inefficient fossil fuel subsidies
Inefficient subsidies for fossil fuel consumption create a significant distortion in global energy markets. These subsidies encourage the inefficient and increased use of fossil fuels, create imprecise price signals for fuel efficiency and provide an unfair advantage for the transition to clean energy technologies.

While sizeable, the direct financial impact of these subsidies is further compounded by environmental and health impacts. A structured and gradual phase-out should be implemented to level the playing field, realign market dynamics towards sustainable energy use and facilitate a smoother transition for economies and consumers accustomed to subsidized energy prices.

10. Avoid trade tensions setting back progress
To tackle climate change effectively, global leaders must face the risks of trade tensions and the trend of homeshoring supply chains. While localizing production boosts domestic industries, it can significantly slow the energy transition by encouraging subsidy races in key clean tech sectors like batteries, hydrogen and solar PV. Additionally, injecting funds into these industries is not the cure, especially given the associated skill shortages.

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Prasanna Singh

Prasanna Singh

Prasanna Singh is the founder at IamRenew

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