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Pathway to critical goal of net-zero emissions by 2050 is narrow but brings huge benefits

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The world has a viable pathway to building a global energy sector with net-zero emissions in 2050, but it is narrow and requires an unprecedented transformation of how energy is produced, transported and used globally, the International Energy Agency said in a landmark special report released today.

Climate pledges by governments to date – even if fully achieved – would fall well short of what is required to bring global energy-related carbon dioxide (CO2) emissions to net zero by 2050 and give the world an even chance of limiting the global temperature rise to 1.5 °C, according to the new report, Net Zero by 2050: a Roadmap for the Global Energy Sector.

The report is the world’s first comprehensive study of how to transition to a net zero energy system by 2050 while ensuring stable and affordable energy supplies, providing universal energy access, and enabling robust economic growth. It sets out a cost-effective and economically productive pathway, resulting in a clean, dynamic and resilient energy economy dominated by renewables like solar and wind instead of fossil fuels. The report also examines key uncertainties, such as the roles of bioenergy, carbon capture and behavioural changes in reaching net zero.

“Our Roadmap shows the priority actions that are needed today to ensure the opportunity of net-zero emissions by 2050 – narrow but still achievable – is not lost. The scale and speed of the efforts demanded by this critical and formidable goal – our best chance of tackling climate change and limiting global warming to 1.5 °C – make this perhaps the greatest challenge humankind has ever faced,” said Fatih Birol, the IEA Executive Director. “The IEA’s pathway to this brighter future brings a historic surge in clean energy investment that creates millions of new jobs and lifts global economic growth. Moving the world onto that pathway requires strong and credible policy actions from governments, underpinned by much greater international cooperation.” 

Building on the IEA’s unrivalled energy modelling tools and expertise, the Roadmap sets out more than 400 milestones to guide the global journey to net zero by 2050. These include, from today, no investment in new fossil fuel supply projects, and no further final investment decisions for new unabated coal plants. By 2035, there are no sales of new internal combustion engine passenger cars, and by 2040, the global electricity sector has already reached net-zero emissions.

In the near term, the report describes a net zero pathway that requires the immediate and massive deployment of all available clean and efficient energy technologies, combined with a major global push to accelerate innovation. The pathway calls for annual additions of solar PV to reach 630 gigawatts by 2030, and those of wind power to reach 390 gigawatts. Together, this is four times the record level set in 2020. For solar PV, it is equivalent to installing the world’s current largest solar park roughly every day. A major worldwide push to increase energy efficiency is also an essential part of these efforts, resulting in the global rate of energy efficiency improvements averaging 4% a year through 2030 – about three times the average over the last two decades.

Most of the global reductions in CO2 emissions between now and 2030 in the net zero pathway come from technologies readily available today. But in 2050, almost half the reductions come from technologies that are currently only at the demonstration or prototype phase. This demands that governments quickly increase and reprioritise their spending on research and development – as well as on demonstrating and deploying clean energy technologies – putting them at the core of energy and climate policy. Progress in the areas of advanced batteries, electrolysers for hydrogen, and direct air capture and storage can be particularly impactful.

A transition of such scale and speed cannot be achieved without sustained support and participation from citizens, whose lives will be affected in multiple ways.

“The clean energy transition is for and about people,” said Dr Birol. “Our Roadmap shows that the enormous challenge of rapidly transitioning to a net zero energy system is also a huge opportunity for our economies. The transition must be fair and inclusive, leaving nobody behind. We have to ensure that developing economies receive the financing and technological know-how they need to build out their energy systems to meet the needs of their expanding populations and economies in a sustainable way.”

Providing electricity to around 785 million people who have no access to it and clean cooking solutions to 2.6 billion people who lack them is an integral part of the Roadmap’s net zero pathway. This costs around $40 billion a year, equal to around 1% of average annual energy sector investment. It also brings major health benefits through reductions in indoor air pollution, cutting the number of premature deaths by 2.5 million a year.

Total annual energy investment surges to USD 5 trillion by 2030 in the net zero pathway, adding an extra 0.4 percentage points a year to global GDP growth, based on a joint analysis with the International Monetary Fund. The jump in private and government spending creates millions of jobs in clean energy, including energy efficiency, as well as in the engineering, manufacturing and construction industries. All of this puts global GDP 4% higher in 2030 than it would reach based on current trends.

By 2050, the energy world looks completely different. Global energy demand is around 8% smaller than today, but it serves an economy more than twice as big and a population with 2 billion more people. Almost 90% of electricity generation comes from renewable sources, with wind and solar PV together accounting for almost 70%. Most of the remainder comes from nuclear power. Solar is the world’s single largest source of total energy supply. Fossil fuels fall from almost four-fifths of total energy supply today to slightly over one-fifth. Fossil fuels that remain are used in goods where the carbon is embodied in the product such as plastics, in facilities fitted with carbon capture, and in sectors where low-emissions technology options are scarce.

“The pathway laid out in our Roadmap is global in scope, but each country will need to design its own strategy, taking into account its own specific circumstances,” said Dr Birol. “Plans need to reflect countries’ differing stages of economic development: in our pathway, advanced economies reach net zero before developing economies. The IEA stands ready to support governments in preparing their own national and regional roadmaps, to provide guidance and assistance in implementing them, and to promote international cooperation on accelerating the energy transition worldwide.”

The special report is designed to inform the high-level negotiations that will take place at the 26th Conference of the Parties (COP26) of the United Nations Climate Change Framework Convention in Glasgow in November. It was requested as input to the negotiations by the UK government’s COP26 Presidency.

“I welcome this report, which sets out a clear roadmap to net-zero emissions and shares many of the priorities we have set as the incoming COP Presidency – that we must act now to scale up clean technologies in all sectors and phase out both coal power and polluting vehicles in the coming decade,” said COP26 President-Designate Alok Sharma. “I am encouraged that it underlines the great value of international collaboration, without which the transition to global net zero could be delayed by decades. Our first goal for the UK as COP26 Presidency is to put the world on a path to driving down emissions, until they reach net zero by the middle of this century.”

New energy security challenges will emerge on the way to net zero by 2050 while longstanding ones will remain, even as the role of oil and gas diminishes. The contraction of oil and natural gas production will have far-reaching implications for all the countries and companies that produce these fuels. No new oil and natural gas fields are needed in the net zero pathway, and supplies become increasingly concentrated in a small number of low-cost producers. OPEC’s share of a much-reduced global oil supply grows from around 37% in recent years to 52% in 2050, a level higher than at any point in the history of oil markets.

Growing energy security challenges that result from the increasing importance of electricity include the variability of supply from some renewables and cybersecurity risks. In addition, the rising dependence on critical minerals required for key clean energy technologies and infrastructure brings risks of price volatility and supply disruptions that could hinder the transition.

“Since the IEA’s founding in 1974, one of its core missions has been to promote secure and affordable energy supplies to foster economic growth. This has remained a key concern of our Net Zero Roadmap,” Dr Birol said. “Governments need to create markets for investments in batteries, digital solutions and electricity grids that reward flexibility and enable adequate and reliable supplies of electricity. The rapidly growing role of critical minerals calls for new international mechanisms to ensure both the timely availability of supplies and sustainable production.”

The full report is available for free on the IEA’s website along with an online interactive that highlights some of the key milestones in the pathway that must be achieved in the next three decades to reach net-zero emissions by 2050.

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Economic Activity in Myanmar to Remain at Low Levels, with the Overall Outlook Bleak

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Myanmar’s economy and people continue to be severely tested by the ongoing impacts of the military coup and the surge in COVID-19 cases in 2021. Following an expected 18 percent contraction of the economy in the year ended September 2021, the World Bank’s Myanmar Economic Monitor, released today, projects growth of 1 percent in the year to September 2022. While reflecting recent signs of stabilization in some areas, the projection remains consistent with a critically weak economy, around 30 percent smaller than it might have been in the absence of COVID-19 and the February 2021 coup.

The near-term outlook will depend on the evolution of the pandemic and the effects of conflict, together with the degree to which foreign exchange and financial sector constraints persist, as well as disruptions to other key services including electricity, logistics and digital connectivity.

“The situation and outlook for most people in Myanmar continues to be extremely worrying,” said World Bank Country Director for Myanmar, Cambodia and Lao PDR Mariam Sherman. “Recent trends of escalating conflict are concerning – firstly from a humanitarian perspective but also from the implications for economic activity. Moreover, with a low vaccination rate and inadequate health services, Myanmar is highly vulnerable to the Omicron variant of COVID-19.”

Among recent signs of economic stabilization, mobility has recovered to 2020 levels after falling around 70 percent below pre-COVID-19 baseline levels in July 2021, though it remains about 30 percent below pre-pandemic levels for retail, recreation, and transport venues. This is likely to have supported the services sector, though overall consumer demand continues to be weak due to recent shocks to incomes and employment. In the manufacturing sector, output and employment also appear to be stabilizing, and exports have recovered in recent months.

Nevertheless, economic activity continues to be affected by substantial weaknesses in both supply and demand. Firms continue to report sharp reductions in sales and profits, cashflow shortages, and a lack of adequate access to banking and internet services. Results from the latest World Bank firms’ survey indicate that around half of all companies experienced disruptions in the supply of inputs and raw materials in October, largely because of increases in costs amid logistics constraints and a sharp depreciation of the kyat. Farmers continue to be affected by higher prices for key inputs, restricted access to credit, and ongoing logistics constraints.

Ongoing economic pressures are having a substantial effect on vulnerability and food security, particularly for the poor, whose savings have been drained as a result of recent shocks. The share of Myanmar’s population living in poverty is expected to have doubled compared to pre-COVID-19 levels. Combined with pressures on agricultural production, rapid price inflation and reduced access to credit are expected to further compound food security risks.

Over the longer term, events since February 2021 are expected to limit Myanmar’s growth potential. “Most indicators suggest that private investment has fallen markedly, and previously viable projects are becoming unviable as demand remains weak, the cost of imports has risen, and kyat-denominated revenues are worth less in foreign currency terms,” said World Bank Senior Economist for Myanmar Kim Edwards. “In addition, lost months of education, together with large increases in unemployment and displacement, will substantially reduce human capital, skills and productive capacity over the longer term.”

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Structural Reforms Needed to Put Tunisia on Path to Sustainable Growth

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Decisive structural reforms and an improved business climate are essential to put Tunisia’s economy on a more sustainable path, create jobs for the growing youth population and better manage the country’s debt burden, according to the Winter 2021 Edition of the World Bank’s Tunisia Economic Monitor.

Titled “Economic Reforms to Navigate out of the Crisis” (in French, “Réformes économiques pour sortir de la crise”), the report estimates a slow economic recovery from COVID-19, with projected growth of 3% in 2021. Weighing on this recovery is rising unemployment, which increased from 15.1% to 18.4% in the third quarter of 2021, affecting the youth and people in the western regions hardest.

The report outlines how the weak recovery puts pressure on Tunisia’s already strained public finances, with the budget deficit still elevated at 7.6% in 2021, despite a small contraction from 9.4% in 2020.  The budget deficit is projected to gradually decline, reaching 5% to 7% of GDP in 2022-23, helped by lower health-related expenditures and provided that the moderately positive trajectory of spending and revenue are maintained. However, Tunisia’s rising public debt will be hard to finance without decisive public finance and economic reforms, the report noted.

“Just like everywhere else, COVID-19 has adversely affected Tunisia’s economy and the report strongly highlights the need to address longstanding challenges to sustainable growth, including improving the business environment,” said Alexandre Arrobbio, World Bank Country Manager for Tunisia. “To emerge from this crisis, Tunisia needs to adopt decisive reforms to promote private sector development, boost competitiveness and create more jobs, especially for women and youth.”

The first chapter of the report analyzes potential reasons behind Tunisia’s slow economic recovery and highlights two specific factors: the country’s reliance on tourism and transport services; and the rigidity of the business climate, including restrictions on investments and competition which constrain the reallocation of resources in the economy.

The second chapter elaborates on key barriers to competition, arguing that Tunisia’s current regulatory environment restricts competition and discourages the development of new businesses. Looking ahead, the report recommends that policy reforms to ensure a level playing field in every sector are essential in order to boost employment for Tunisians and to increase purchasing power.  

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Lebanon’s Crisis: Great Denial in the Deliberate Depression

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The scale and scope of Lebanon’s deliberate depression are leading to the disintegration of key pillars of Lebanon’s post-civil war political economy. This is being manifested by a collapse of the most basic public services; persistent and debilitating internal political discord; and mass brain drain. Meanwhile, the poor and the middle class, who were never well served under this model in the first place, are carrying the main burden of the crisis.

According to the World Bank Lebanon Economic Monitor (LEM) Fall 2021 “The Great Denial”, Lebanon’s deliberate depression is orchestrated by the country’s elite that has long captured the state and lived off its economic rents.  This capture persists despite the severity of the crisis –one of the top ten, possibly top three most severe economic collapses worldwide since the 1850s; it has come to threaten the country’s long-term stability and social peace. The country’s post-war economic development model which thrived on large capital inflows and international support in return for promises of reforms is bankrupt. In addition, the collapse is occurring in a highly unstable geo-political environment making the urgency of addressing the dire crisis even more pressing.

The LEM estimates real GDP to decline by 10.5 percent in 2021, on the back of a 21.4 contraction in 2020. In fact, Lebanon’s GDP plummeted from close to US$52 billion in 2019 to a projected US$21.8 billion in 2021, marking a 58.1 percent contraction—the highest contraction in a list of 193 countries.

Monetary and financial turmoil continue to drive crisis conditions, under a multiple exchange rate system which poses valuable challenges on the economy. The sharp deterioration in the Lebanese Lira persisted in 2021, with the US$ banknote rate and the World Bank Average Exchange rate depreciating by 211 and 219 percent (year-on-year), respectively, over the first 11 months of the year. Exchange rate pass through effects on prices have resulted in surging inflation, estimated to average 145 percent in 2021—ranking 3rd globally after Venezuela and Sudan. Inflation is a highly regressive tax, disproportionally affecting the poor and vulnerable, and more generally, people living on fixed income like pensioners. Food inflation remains concerning as it forms a larger proportion of the expenses incurred by poorer households who are struggling to make ends meet with their deteriorating purchasing power.

Government revenues are estimated to almost halve in 2021 to reach 6.6 percent of GDP, marking the 3rd lowest ratio globally after Somalia and Yemen. The expenditure contraction was even more pronounced, led partially by drastic cutbacks in primary spending, which has reinforced the economic spiral. Meanwhile, gross debt is estimated to reach 183 percent of GDP in 2021, taking Lebanon to the 4th highest ratio in the world preceded only by Japan, Sudan and Greece.

A rare relative bright spot in 2021 has been tourism, which helped hold the current account deficit-to-GDP ratio steady.

Starting Spring 2021, a disorderly termination of the foreign exchange (FX) subsidy commenced and was in full force by the summer. The path authorities followed to the subsidy removal was opaque, inadequately coordinated and lacked timely pro-poor alleviation measures. As a result, subsidy removal mostly benefited importers and smugglers while precious and scarce FX resources were drained.

“Deliberate denial during deliberate depression is creating long-lasting scars on the economy and society. Over two years into the financial crisis, Lebanon has yet to identify, least of all embark upon, a credible path toward economic and financial recovery,” said Saroj Kumar Jha, World Bank Mashreq Regional Director. “The Government of Lebanon urgently needs to move forward with the adoption of a credible, comprehensive and equitable macro-financial stabilization and recovery plan and accelerate its implementation if it is to avoid a complete destruction of its social and economic networks and immediately stop irreversible loss of human capital. The World Bank reconfirms its readiness to continue to support Lebanon in addressing the pressing needs of its people and challenges affecting their livelihoods.”

As detailed and called for in previous issues of the LEM, this strategy would be based on: (i) a new monetary policy framework that would regain confidence and stability in the exchange rate; (ii) a debt restructuring program that would achieve short-term fiscal space and medium-term debt sustainability; (iii) a comprehensive restructuring of the financial sector to regain solvency of the banking sector; (iv) a phased, equitable, fiscal adjustment to regain confidence in fiscal policy; (v) growth enhancing reforms; and (vi) enhanced social protection.

Particularly, initiating a comprehensive, well-structured and swift reform of the electricity sector is critical to address the long-standing and compounding challenges of this sector which is at the center of Lebanon’s economic and social recovery. In addition, Lebanon needs to step-up efforts to ensure efficient and prompt delivery of social protection assistance to the poor and vulnerable households struggling under the continuing economic crisis.

The Special Focus section of the LEM “Searching for the External Lift in the Deliberate Depression” examines the reasons for the weaker than expected increase in exports considering the Lebanese Lira’s sharp depreciation; it analyzes the failure thus far for the external sector to sufficiently benefit from increased price competitiveness and become a more robust driver of growth. The Special Focus finds that Lebanon’s exports are inhibited by three factors (outside of the crisis itself): (i) (pre crisis) economic fundamentals; (ii) global conditions; and (iii) political/institutional environment.

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