NEO 2022
The global energy crisis has led to unprecedented conditions in energy and commodity markets, supply- chain challenges and an extraordinary economic...
New Energy Outlook 2022
Executive Summary
The global energy crisis has led to unprecedented conditions in energy and commodity markets, supply- chain challenges and an extraordinary economic environment that is challenging policy makers and the private sector. In the midst of the turmoil, the energy transition has continued and even accelerated, as the economic competitiveness of key clean energy technologies improves against fossil fuels, and many governments seek alternatives to volatile energy commodities.
While the 2022 UN climate talks in Egypt have not led to another step-change in ambition for the low-carbon transition, it remains the case that the majority of the world’s economies and emitters are committed to reaching net zero by the middle of the century, and to the goals of keeping global warming well below 2 degrees Celsius and pursuing efforts for 1.5C.
This year’s New Energy Outlook provides two new scenarios to map how the energy transition may proceed from here – a Net Zero Scenario that charts new country-level pathways to global net-zero emissions by 2050, meeting the goals of the Paris Agreement, and an Economic Transition Scenario, which shows how economic forces and technology tipping points can drive a transition without further policy action.
The last ten years of technological development, scale-up and industrial experience have brought several clean energy technologies – wind and solar power, battery storage and electric vehicles – to the point where they can outcompete their fossil-fuel-burning counterparts on an economic basis in most geographies, or soon will.
Our Economic Transition Scenario explores a future where the global energy transition is primarily driven by these changes in the economic competitiveness of key technologies, without concerted policy actions to accelerate the transition beyond those policies in place today. It can be interpreted as a world where policy makers and the private sector pursue only the technological transformations which ‘pay for themselves’.
In our updated Scenario, renewable energy dominates the power sector by 2050, with wind (36%) and solar (29%) supplying nearly two-thirds of the world’s electricity demand – a result of their cost-competitiveness in the vast majority of geographies already today. The emissions intensity of the global power system drops by 74%, even as greater electrification and economic growth drive overall power demand up by two-thirds, to nearly 39,000 terawatt-hours. Global power-sector emissions peak this year at 13.7 gigatons of CO2 equivalent, thanks to the post-Covid recovery and the energy crisis, and decline to 5.8 gigatons of CO2 equivalent by 2050 – an impressive 57% reduction, but still far from net zero.
Throughout this transition, the world adds almost 23 terawatts of new power capacity, of which solar, wind and battery storage account for 85%. The annual rates of deployment for wind and solar peak at roughly three times their annual-build records set in 2021.
Transport (including road, aviation, shipping and rail) is the only other sector on track to reduce emissions by 2050, with the rise of electric vehicles in the road segment driving a structural transformation away from liquid fossil fuels and toward reliance on electricity. This yields a 22% reduction in overall (Scope 1) transport emissions by 2050, or 13% after accounting for emissions from power generation. Taken together, electric passenger vehicles, commercial vehicles, buses, trucks and two- and three-wheelers create an additional 5,640 terawatt-hours of power demand by 2050 (about 14% of global electricity consumption), but their efficiency advantage against internal combustion engines means that final energy consumption in all of transport is down 21% by 2050, despite rising demand for all modes of transport.
These efficiency gains, and a broader decoupling of economic growth from energy consumption, are apparent in the overall picture. Global GDP rises by a factor of 2.2x to 2050 in our Economic Transition Scenario, but the amount of ‘useful energy’ consumed in the economy only rises 35%, to 383 exajoules. Strikingly, primary energy consumption grows by a meager 4% to 2050, its gains hobbled by the massive efficiency improvements associated with the electrification of end uses, and the switch from coal- and gas-fired power generation to renewable power.
Unlike transport, emissions from industry remain largely flat, and those from buildings rise by 16% to 2050. This is due to the lack of commercially available, economically competitive technology solutions for abating emissions in these sectors, in our ETS.
The dramatic transformations in the power and road transport sectors eliminate around half of the emissions that might otherwise exist in 2050 under a ‘no transition’ counterfactual scenario, but this is far from the net-zero result required to stay within the climate-safe boundaries set by the Paris Agreement. By 2050, emissions have fallen 29% but unabated coal, oil and gas still emit 24.3 gigatons of CO2 per year. The result is a trajectory consistent with 2.6C of global warming, with a 67% confidence interval.
The New Energy Outlook 2022 report incorporates new data and extended analysis.
Net Zero Scenario. We have produced a single, unified Net Zero Scenario that is economics-led and solves for a mix of technology solutions, building on the three distinct technology paradigms presented in last year’s report. It charts an energy transition pathway consistent with the Paris Agreement goal of keeping global warming well below 2C, while pursuing the more ambitious 1.5C target and achieving net-zero emissions worldwide by 2050. We have designed our Net Zero Scenario to be plausible and achievable. It takes a sector-based approach to decarbonization, avoiding drastic step-changes that would over-stretch the expansion capacity of supply chains and the speed at which assets can change over.
Country-level results. In addition to global and sector results, this year’s outlook for the first time includes country-level results for China, India, Japan, Indonesia, Australia, the US, Germany, France and the UK.
Updated Economic Transition Scenario. We have completely updated our base case ETS scenario for 25 regions, incorporating the impact of the global energy crisis, the war in Ukraine, and the impact of recent policy changes in major markets.
Improved industry modeling. Decarbonization in the steel, aluminum, and cement industries is now based on a least-cost approach to abatement. This incorporates detailed BNEF analysis on the future cost of abatement in these sectors and the existing infrastructure by country. We also update our material-demand forecasts.
Improved gas price modeling. As part of this year’s NEO modeling process, BNEF has piloted a partnership with the market simulation team at RBAC, using their supply model to produce a price forecast with our demand scenarios as input.
Improved power-sector modeling. Our NEFM-2 power model now incorporates grid size constraints in hourly dispatch to 2050 to prevent oversizing the grid for the energy transition. Amongst several back-end enhancements to the model, we also improved our storage and flexible demand algorithms.
Updated investment analysis. Our investment analysis now accounts for both supply side and low-carbon demand side investment.
Enhanced data release. As part of the report we are releasing the NEO Data Viewer with full country- and sector-level results. We have enhanced data sets for power, grids, investment, hydrogen, carbon capture and storage, and the macroeconomic assumptions that underpin our analysis.
Economic Transition Scenario
The power sector’s transition toward an increasingly low-carbon system is well under way. The transport sector is starting to turn a corner with the rise of electrified transport, but progress in reducing the carbon footprint in the industry and buildings sector is still lagging.
The report provides a detailed update on the Economic Transition Scenario, or ETS our baseline assessment of how the energy sector may evolve from today as a result of cost-based technology changes. We present out Economic Transition Scenario, explore the impact of the current global energy crisis and the war in Ukraine on key modeling parameters, and then provide an overview of the global key drivers that shape this economics-led pathway and sectoral results.
The ETS is our baseline assessment of how the energy sector might evolve from today as a result of cost-based technology changes. It includes detailed modeling on the power sector, transport, industry and buildings. The ETS combines near-term market activity, the uptake of new consumer-facing energy products, least-cost system modeling and economics-led analysis to describe the deployment and diffusion of commercially available technologies. Technology transition only occurs in this scenario where it outcompetes existing technologies or lowers system cost. Global population and economic growth continue in line with historic trends and demographic shifts, taking into account changing demand.
Our scenarios incorporate legislated and firm near-term policy, but do not assume either country-level, or corporate, energy and climate objectives are met. In this way the ETS describes how the energy sector might evolve in the absence of further major climate policy intervention.
BNEF uses a sector-led, bottom-up modeling approach with country-level granularity for all major sub-sectors of the energy economy. The power sector outlook is produced with BNEF’s NEFM-2 power model, which simulates the power sector at the end-use level in 49 markets and regions. The model takes into account 25 electricity generation classes, deployment of energy storage, demand flexibility, on-grid hydrogen electrolyzers and grid constraints. It then uses an hourly supply-demand model to 2050 to build an optimized least-cost system capable of meeting peak demand.
Our Net Zero Scenario, or NZS, charts an energy transition pathway consistent with the Paris Agreement goal of keeping global warming well below 2C and achieving net-zero emissions worldwide by 2050. Achieving this goal means transitioning every sector of the energy system – power, transport, industry and buildings – to fully carbon-free energy sources, alongside significant efficiency gains and a small amount of carbon removal for the hardest-to-abate emissions.
This year, we have conducted our NZS analysis with country-level granularity for nine countries, and regional granularity for other parts of the world, taking into account the physical characteristics of each territory, as well as their differing circumstances, advantages and resources. We have produced a single, unified NZS that is economics-led and solves for a mix of technology solutions, building on the three distinct technology paradigms presented in last year’s report. To achieve global net zero by 2050 is a goal of breathtaking ambition – we have designed our NZS to be plausible and achievable, avoiding drastic step-changes that would over-stretch the expansion capacity of supply chains and the speed at which assets can change over.
The final result of NZS is a pathway consistent with a 1.77C temperature rise by 2050 (with a 67% likelihood) with no overshoot or the need for net-negative emissions post-2050. This trajectory gives a 33% chance of staying within 1.5C, but a better than 67% chance of staying below 2C.
Getting to net zero by mid-century requires a complete phase-out of unabated fossil fuel use in the energy sector. In our Net Zero Scenario, oil, gas and coal consumption peak almost immediately, if they have not already.
Switching power generation from fossil fuels to clean sources is the single biggest contributor to global emissions reduction, accounting for half of all emissions abated over 2022-50. This includes displacing unabated fossil fuel with wind, solar, other renewables and nuclear. Electrification of transport and industrial processes, buildings and heat – using increasingly lower-carbon electricity – is the next biggest contributor, abating about a quarter of total emissions over the period.
Carbon capture and storage, or CCS, spurs decarbonization in industry, with some uptake in clean hydrogen and electricity production. CCS gains in importance from the early 2030s, as hard-to-abate sectors are being tackled and unabated fossil-fuel plants are retrofitted. CCS accounts for 11% of all emissions abated over the scenario period. The annual rate of emissions captured by CCS grows from very low levels today to 1.7 gigatons of CO2 in 2030, 4.9 gigatons in 2040 and 7.3 gigatons by 2050 – a volume comparable to the combined power sector emissions of China, the US and Europe in 2021. Carbon removals only account for 1% of emissions and are mainly needed to abate residual emissions from CCS applications.
The use of bioenergy outside the power sector also increases, with applications in buildings, industry and in producing sustainable aviation fuels for the transport sector.
Global hydrogen use jumps more than ficefold to 2050 under the NZS, growing from over 90 million tons today to 501m tons. Growth is driven by use in the energy industry (163m tons), where it helps decarbonize fuel refining, fuel extraction and equipment operation, and by applications in steel making (144m tons). In transport, some 88m tons of hydrogen is used either in its pure form, or as derivative fuels such as methanol or ammonia, to propel planes and vessels over medium to long distances. In power, consumption by combined-cycle- and peaker gas plants reaches 43m tons. Use is mostly confined to providing backup generation as burning hydrogen for bulk supply is uncompetitive against renewables and plants equipped with CCS in most regions. In buildings, consumption reaches 30m tons in 2050.
Today, most hydrogen production is so-called gray, produced from unabated fossil fuels. By 2050, low-carbon hydrogen produced with flexible grid-connected electrolyzers powered by renewables and nuclear power becomes the dominant pathway in the NZS. Hydrogen production becomes a significant factor in the overall power system. In total, nearly 21,000 terawatt-hours of electricity is used for hydrogen production in 2050 in the NZS – equivalent to three-quarters of the world’s total power demand today. Blue hydrogen from fossil fuels with CCS plays a small but important role.
In sum, our Net Zero Scenario implies an investment opportunity of $194 trillion between now and 2050. Annual investment rises from $5.5 trillion a year in the remainder of this decade to $7.4 trillion a year in the 2040s. These totals include investment in both fossil and clean energy supply projects, as well as clean demand-side areas such as electric vehicles and heat pumps. Electric vehicles alone draw 47% of all tracked investment to 2050 in the NZS. Low-carbon power is the next largest investment area, at $45.8 trillion, or about 24% of the total.
The ratio of investment in clean-energy supply to fossil sources (so, excluding demand areas) must average 2.9 in this decade, and then rise to 4.9 in the 2030s and 9.7 in the 2040s. This means that, for every dollar invested in fossil-energy supplies between now and 2030, $2.9 should be invested in clean energy supplies, such as renewable energy, clean hydrogen and carbon capture, rising to nearly $10 after 2040. These ratios can provide a guide for financial institutions wishing to align their investing and lending activities to a net-zero trajectory.
Final energy use
The final energy use changes profoundly by 2050. Energy consumption in industry continues to rise through mid-century, but the energy mix changes significantly. Electricity increases from 20% in 2022 to 35% in 2050, while energy from coal and gas declines to 5% and 8% by 2050, respectively. Industry, too, is the sector where hydrogen makes the most inroads. Hydrogen comprises all of the new incremental demand beginning in the mid-2030s.
Transport energy demand changes markedly due to widespread electrification. As in the ETS, the move from combustion to electrification, and the decarbonization of electricity supply, drives massive new efficiencies through the system – but at an even higher rate in the NZS. The result is that by mid-century, oil consumption effectively vanishes while at the same time, total final energy consumption drops by 46%, almost half.
Final energy consumption in the buildings sector falls 8% in the Net Zero Scenario to 113 exajoules by mid-century, but building energy demand from buildings increases slightly beforehand, peaking at 127 exajoules in 2029. Electricity provides the largest share of final energy to the buildings sector, growing from 33% today to 38% by 2030, and then 65% in 2050. Bioenergy, which today is commonly used for cooking in developing economies, declines from 23% of final energy today, to 17% in 2050. Hydrogen captures 4% of final energy use in buildings, but district heating plays a bigger role, meeting 10% of demand.
The power grid emerges as a key enabler for our Net Zero Scenario, attracting $21 trillion in investment by 2050, or about 11% of the total. These investments fund a substantial expansion of the global electricity system to connect new supply points and serve growing demands, driven by electrification and the growth of renewables - as well as ensuring the safe, ongoing operations of the existing grid, through refurbishment and replacement of aging assets.
By 2050, in the NZS, the global transmission and distribution grids more than doubles in length. The total length of underground cables, submarine cables and HVDC lines are each more than double, underscoring the foundational role that power grids will play in the energy transition.
This year’s NEO analysis includes country-level granularity for nine key countries: the US, China, India, Indonesia, Japan, Australia, Germany, France and the UK. Each country will chart its own course to net-zero emissions, depending on its natural resources, local technology cost and strategic advantages. This section summarizes the main dynamics in these countries’ transitions, and their similarities and differences, with a focus on the Net Zero Scenario.
BNEF will publish more detail on these countries in individual reports in the first half of 2023. Meanwhile, the country-level data can be found in the NEO Data Viewer.
Emissions
Three country groupings emerge in the race to zero. All countries in our Net Zero Scenario get to net zero by mid-century; some move faster this decade, while others leave more to do in later decades. These differences are mainly driven by the relative sectoral split of emissions in country economies. They therefore do not reflect BNEF’s judgment of country responsibility – they are a product of the division of the sectoral carbon budget, along with economic growth and demand factors.
The first grouping consists of countries where emissions in the NZS have already peaked by 2022. It includes Europe, the US, Australia and Japan. Emissions reductions accelerate early in the 2020s, with steady progress thereafter.
China is in its own category: emissions in the NZS peak around 2022 before stabilizing and falling rapidly and aligning with the OECD countries’ trajectories. A decisive phase-out of unabated coal is among the biggest contributors to enable this transition.
The third category of countries sees emissions growth above the global average in the 2020s and only start to turn the corner in the early 2030s. This group includes India, Indonesia and other countries grouped as “Rest of world”.
Some countries’ NDCs look ambitious, others less so.
To compare countries’ Nationally Determined Contributions (NDCs – their latest climate pledges under the Paris Agreement) with our scenario results, we estimate countries’ CO2 emissions from electricity and heat, transport, buildings and industry assuming that they achieve their stated NDC targets. Extracting these data from NDCs is not always straightforward. It is also worth noting that our NZS assumes a 1.77C warming target , which implies a global reduction in energy-related emissions of about 29% by 2030. This is slightly different to a 1.5C target as specified by the Glasgow Climate Pact, which requires a 43% reduction by 2030. While NDCs and our scenario may therefore not be perfectly aligned, we can still draw some conclusions:
China, India, Indonesia can afford to raise their ambition, even based on the Economic Transition Scenario. China, India and Indonesia’s NDCs would see emissions rise between 2019 and 2030, not fall. Our modeling shows they can beat their NDC targets in both our scenarios. While emissions in the ETS in Indonesia and India rise 30% and 22%, these increases fall short of the charted 96% and 31% rises implied by their NDCs. China can even reverse the historic trend, with emissions in our ETS peaking around today and falling by 12% in 2030 relative to 2019, instead of rising 68% under their NDC. A decisive transition away from coal will be key to achieve this objective.
The US, Japan, Germany and Australia achieve (or come close to) their 2030 targets in the Net Zero Scenario. The US, Japan, Germany and Australia are able to meet their NDCs under the emissions reduction trajectory in the NZS, provided they are taking decisive action and raise ambitions for deep decarbonization. The UK and France miss their targets, though the difference in absolute terms is relatively small.
Germany meets its NDC in our base case ETS; other developed economies do not. We find that only Germany is able to reach its stated NDC target under our ETS – just about. It is worth noting that NDCs are meant to reduce emissions by at least 43% over 2019-30 in a 1.5C-aligned scenario, while emissions in our 1.77C-aligned scenario on average fall by 29%.
Metals are a critical enabler, and a potential bottleneck, for the transition. As demand for low-carbon power, batteries and grid infrastructure grows, so does the need for the metals that underpin them. The scale of growth for some metals is enormous – 2050 lithium demand from the energy transition alone looks to be about 17.5 times more than demand in 2020. Energy transition-related demand for cobalt, nickel and copper in our Net Zero Scenario also exceeds total demand in 2020 for these metals. This exponential growth will require newer technologies that increase the scale of production, without compromising the sustainable extraction of these metals.
