Following the IPCC’s report presenting some gloomy predictions for the future of energy transition, Simon Flowers, Chairman and Chief Analyst at Wood Mackenzie consultancy, noted that there are three encouraging signs that society sees the need to deal with a deteriorating environment.
1) Clean air in cities
China has shown how to clean up a local environment quickly. The government reacted to poor air quality in Beijing and other major cities by closing older coal power plants and forcing energy intensive industry and the residential sector to shift away from coal. The country’s return on investment will include a substantial future health care dividend. Meanwhile, European cities are introducing restrictions on diesel cars to improve air quality.
2) Desulphurisation of global shipping
High Sulphur Fuel Oil (HSFO) meets around 3.5 million b/d of the total marine market of 5 million b/d. A maximum of 3.5% sulphur content is allowed currently (tighter limits on some voyages since 2005), but IMO’s sulphur cap, to take effect from 2020, will dramatically reduce the release of sulphur oxides into the atmosphere.
Some ships will switch to Very Low Sulphur Fuel Oil, of which only around 1.4 million b/d will be available in 2020. Others will have to choose between investing in scrubbers or buying premium-priced low sulphur Marine Gas Oil.
Longer-term, lower carbon-intensity gas is a winner as LNG becomes fuel of choice for many new builds. Marine LNG demand climbs from near zero to 50 mmtpa by 2040 on our forecasts, behind only China, India and Japan as a demand centre. LNG will displace over 1 million b/d of oil demand in shipping by 2040.
3) Europe’s radical decarbonisation plans
The European Commission is proposing to reduce carbon emissions for new cars and vans by 30% by 2030 versus 2020. The UK’s 2050 roadmap, presently at the concept stage, envisages a far more demanding regime. The mooted 80% reduction in emissions compared with 1990 will embrace all sectors. Power and transport are already moving in this direction, but the legacy fuel mix in many other sectors will be disrupted, too.
Near zero-energy buildings and homes might be possible with energy efficiency improvements, renewables and heat pumps. Electrification, recycling and bioenergy could reduce fossil fuel use in energy intensive sectors like steel and aluminium.
Some sectors will cite the risk decarbonisation poses to Europe’s global competitiveness. If change is to come, industry will need to build new partnerships with society to meet these targets.
The 2050 roadmap signals the ambition and will be game changing for Europe if it is adopted. It would provide a template for a global roll out that would go a long way toward meeting UN’s concerns. The question is, will others follow?
