Energy transition outlook: lost opportunity, unsung hero and a warmer future

Introducing the report, Mr Eriksen said Covid recovery spending has "been a lost opportunity for a green reset of economic activity".

"The almost US$20Tn that has been used to stimulate the economic recovery over the past 20 months has mainly been directed toward building back the existing economic and industrial engine. In other words, building back but not building better," Mr Eriksen said.

In fact, DNV’s report predicts that, at the current meagre rate of transitioning away from fossil-based fuels, the world will not even make it halfway to net zero by the 2050 target that forms the backbone of the Paris Agreement’s goals.

"In 2050, there will be 19GT of CO₂ emitted, amounting to a 45% reduction compared with current levels and very far from net zero," Mr Eriksen said.

Shipping is one of the relatively bright spots in the carbon-heavy haze of the report’s predictions, along with improvements in energy efficiency and the greening of the power sector.

"Maritime is likely to achieve IMO’s decarbonisation goal of cutting greenhouse gas emissions by 50% by 2050. The shipping fleet will replace about 42% of present oil use with low and zero-carbon fuels like hydrogen, ammonia, e-methanol and other electro-based fuels," Mr Eriksen said.

However, maritime is included among the so-called hard-to-abate industries that cannot be directly electrified and that will lag behind other economic sectors in decarbonising.

Thanks to the government subsidies that have flowed into renewable energy production technologies in recent decades, global power grids will serve up to 80% renewable energy in 2050. And, with similar subsidies helping electric vehicles to eventually drive the internal combustion engine out of pole position, the road transport sector will be a major user of power from the greener grid, cutting out even more carbon.

The trend towards electrification is part of an equation that Mr Eriksen called the "biggest tool in tackling climate change", that also includes more efficiency and less heat lost in burning fossil fuels for power generation.

Efficiency, however, is not at the top of the list for many investors, Mr Eriksen pointed out, and will need government support to achieve.

"Energy efficiency is, in a way, the unsung hero of the energy transition. It is our biggest tool in tackling climate change, but it is often very difficult to invest in because efficiency gains tend to be shared across value chains. The party benefiting is, quite often, not the one paying the bills. What is needed, therefore, are more government mandates and regulation and a lot more industry co-operation on standards," he said.

Of the fossil fuels still being burned, coal will be on its last legs, down to a 10th of today’s use. Gas will make up a quarter of the energy mix, becoming the largest single primary energy source, but only 15% of gas will be decarbonised by 2050, and most of it will be in the form of biomethane, rather than natural gas, a thorny issue that leaves the hard-to-abate sectors like maritime struggling to decarbonise and is inextricably linked with slow development of hydrogen, as Mr Eriksen said.

"This level of decarbonisation is too little, too late and represents a major challenge. The challenge arises because biofuel production is limited by sustainability and food production concerns, and that leaves hydrogen as the go-to solution for these hard-to-abate sectors," he said.

There is a lot of talk in the energy community about hydrogen, but our forecasts say that hydrogen will only start to scale from the late 2030s, meeting 5% of global energy demand by 2050. That is not impressive, and it is not enough."

Ultimately, Mr Eriksen said, DNV’s report shows that the fate of the world rests in the hands of those who are governing.

"Over the past 18 months, we have seen how governments have acted boldly in the face of global tragedy. And even bolder action will again be needed if we are to use the short window of opportunity to limit global warming to well below 2°C."