The future of energy: How the energy sector will have to change to tackle the climate crisis

The future of energy: How the energy sector will have to change to tackle the climate crisis

And what exactly needs to be done to reduce the energy-related carbon footprint

Rebecca Pflanz

Aug 13, 2021

·

10

min read

What does the future of energy look like?

To prevent climate change from proceeding past its tipping point – a point beyond which there is no return – we need to rapidly reduce greenhouse gas emissions.

But first things first: In order to be able to reduce greenhouse gases efficiently, the world needs to be sure where they come from, which brings us to the topic of this article: energy.

Energy is at the heart of the matter when it comes to climate change. Accounting for nearly three-quarters of global greenhouse gas emissions, the energy sector plays a crucial role in limiting warming to well below 2°C and its ability to adapt quickly will define the future of this planet.

Because one thing is for sure: Countries all over the world must step up their actions – and they must do so urgently. Most governments’ climate change pledges that exist so far – even if achieved – would fall short of what is required to bring global energy-related carbon dioxide emissions to net-zero by 2050.

So what does the future of energy look like, what can the sector do to reduce its emissions, and which trends are worth pursuing?

It’s time to step up the challenge. Read on to find out how!

The Speed Read:

1. Emissions from the energy sector alone make up nearly three-quarters of total global emissions. In order to reach the 2050 net-zero goal, the energy industry needs to be overhauled completely.

2. On a broad scale, there are six main sectors responsible for a large amount of our CO2e emissions: Energy, Industry, Agriculture & Food, Forests & Land Use, Transport, Buildings & Construction.

3. In each of these sectors, there are energy-related emissions too (e.g. Transport, Industry, Buildings & Cities).

4. Tackling these various different areas calls for a diverse range of solutions. From enhancing energy efficiency to capturing and storing CO2e before it escapes, to realizing the potential of hydrogen – there are a lot of areas to cover and a lot of challenges to be overcome. The most important ones are analyzed in this article.

Emissions by sector: Energy is leading

As said above, the energy sector alone makes up nearly three-quarters of total global emissions. Just take a look at the following graph that compares energy-related CO2e emissions to other sectors over the span of 1990 to 2021:

Energy-related CO2e emissions to other sectors over the span of 1990 to 2021:
SOURCE: CLIMATE WATCH

As if that wasn’t enough, global energy-related emissions are now even headed for their second-largest annual increase ever at an expected growth of 4.8%, with demand for fossil fuels set to increase significantly instead of slowing down. Coal demand alone, for example, is expected to increase by 60% – that’s more than all renewables combined.

Considering the fact that we only have 29 years left to reach the 2050 net-zero goal, we should be reducing global emissions by at least 7.6% instead of increasing them – so this projection is far from positive.

In order to reach the 2050 net-zero goal, the energy industry needs to be overhauled completely. But where to even start?

Where do energy emissions come from?

Before we dive deeper into the future of energy, let’s get the basics straight:

While the energy sector alone is a massive emissions emitter, other sectors — like Transportation, Industry, etc — also have energy-related emissions. In the following part, let’s take a look at Electricity & Heat generation (the largest emitting category within the Energy sector), Industry, Transportation, and, lastly, the Building & Construction sector.

#1: Emissions from the Energy sector

Considering the future of energy, electricity generation is probably the most obvious sector, given that “energy” and “electricity” almost go hand in hand these days.

And indeed, the transformation of the electricity sector is central to achieving net-zero emissions in 2050. Electricity generation is the single largest source of energy-related CO2e emissions today, accounting for 36% of all energy-related emissions with the vast majority of power generation still coming from coal with more than 70%.

This is especially concerning, considering that the demand for electricity will only grow in the coming years by at least 3.2% per year. (Just think of all the electric cars that will have to all be powered! 🚗)

As you can imagine, renewables – especially solar and wind – will play the biggest role in changing the electricity grid to become more sustainable in the future. To be precise, global electricity generation from renewables must even grow eightfold by 2050 in order to meet the demand:

Global electricity generation by source
SOURCE: IEA

#2: Energy-related emissions from the Industry sector

What do skyscrapers, bridges, cars and windmills have in common?

One thing: steel.

Steel is the world’s most commonly used metal. Unfortunately, steel isn’t very green. It accounts for 7-9% of all direct fossil fuel emissions. But steel is only part of the challenges the industry sector is facing on its way to becoming more sustainable. As the second-largest source of global energy-related CO2e emissions, the industry sector will have to undergo a substantial shift.

While fossil fuel companies have in recent times come under shareholder pressure to change their behaviour, there is much less understanding and knowledge among people when it comes to decarbonising the heavy manufacturing industry. That’s because the solution to fossil fuels is much easier to grasp: shut down coal mines, move to renewables, et voila – there you go!

With heavy industry, it’s not that easy.

The production of these industries is essential to our modern lives and will be necessary to build a functioning infrastructure based on renewable energy. So the future of energy – or, rather, the future of renewable energy – will require us to find a way to carry on producing them but without emitting CO2e.

Overhauling the so far “smoky” industry to become green is not going to be easy. It will require huge levels of investment, which could run into hundreds of billions of dollars. Furthermore, complications are added due to the competitiveness of these heavy industry products, a sector in which profit margins are low. This makes it more difficult to introduce additional costs related to the adoption of new and more sustainable production methods.

#3: Energy-related emissions from the Transport sector

The future of energy also requires a shift in transportation. If we want to reach net-zero emissions by 2050, the transport sectors emissions need to drop by 90% compared to 2020 levels according to the IEA. So far transport has been heavily reliant on oil products, which accounted for more than 90% of the sector’s energy needs.

The decarbonisation of the transport sector depends majorly on the following technology transitions: in 2050 electricity will have to be the dominant fuel in the transport sector worldwide (45%) followed by hydrogen-based fuels(28%) and bioenergy (16%). The ideal scenario proposes that as time goes on, biofuels are increasingly used only for aviation and shipping, where the scope for using electricity and hydrogen is more limited.

The development also, however, relies heavily on government policies to build up better transport infrastructures, that allow for more efficient passenger transport modes, and improvements in energy efficiency.

#4: Energy-related emissions from the Building & Construction sector

When it comes to the building sector, the good news is: the transformation towards energy-related lower emissions relies primarily on technologies that are already available on the market: heat pumps, material‐efficient building design, digitalisation, and smart controls. Energy efficiency and electrification are thus the two main drivers of decarbonisation here.

The future of energy: 5 challenges to overcome

Now that we have established a basic understanding of the different sectors that play a role when it comes to the future of energy and realising a successful energy transition, it’s time to focus on the juicy part: the challenges.

As you can imagine, tackling these various different areas calls for a diverse range of solutions.

From enhancing energy efficiency to capturing and storing CO2e before it escapes to realising the potential of hydrogen – there are a lot of areas to cover. To go into detail with all of them exceeds the scope of this article, which is why we will only focus on the most important areas here: hydrogen, fossil fuels, and carbon capture:

#1: How green is hydrogen, really?

If you have been keeping on top of recent renewable energy news, you will most likely have heard of hydrogen – the superpower, the answer to all renewable energy problems, and the future of the energy sector. So what exactly is it, why do governments worldwide build their net-zero strategies around it, and what are the challenges related to this “superpower”?  

In the IEA’s 2050 net-zero scenario, hydrogen demand is supposed to increase from 90 million tonnes in 2020 to 530 million tonnes in 2050. Sounds great, doesn’t it?

There is one big challenge connected to this goal though: for hydrogen to make a significant contribution to the energy transition, it needs to be adopted in sectors in which it is currently not being used at all, namely: heavy industry, transport (including shipping and aviation), and electricity generation (as a balance to compensate for days when it’s not sunny or windy).

Hydrogen demand is supposed to increase from 90 million tonnes in 2020 to 530 million tonnes in 2050.
SOURCE: FINANCIAL TIMES

This is made more difficult by the fact that not all hydrogen is “sustainable”. It very much depends on how the hydrogen is produced. It can either be extracted from fossil fuels and biomass (not so green), from water (very green) or from a mix of both. The bad news is: currently, hydrogen is almost entirely supplied from natural gas and coal. In order to meet the net-zero goals, hydrogen production will have to be almost entirely based on low-carbon technologies such as water electrolysis (which produces hydrogen from electricity and water). And at the moment, this is very costly. However, the IEA found that the cost of producing hydrogen from renewable electricity could fall by 30% by 2030 as a result of declining costs of renewables.

Food for thought: The various uses of hydrogen

1. In transport, it could present potential solutions for trucks, shipping and aviation, which currently have limited low-carbon fuel options available, thus presenting opportunities for hydrogen-based fuels

2. In the industry sector, such as for steel production, clean hydrogen has the potential to reduce emissions.

3. In buildings, hydrogen can be used to complement existing natural gas networks.

4. Energy storage: hydrogen also has immense potential for storing renewable energy, thus providing power generation for periods in which solar and wind power are weak.

#2: Will fossil fuels ever end?

Who isn’t longing for that moment? The moment, when finally, after years of protests, governmental indecisiveness (and a bit more protests) fossil fuels will have finally served their time.

Unfortunately, this moment still seems like a distant dream.

Although China is growing its renewables quite rapidly, coal-fired power plants are still dominating, having increased nearly 7% between 2019 and 2021. India shows similar numbers, with the expected rise in coal in 2021 being in all likelihood three times greater than the generation from renewable energy. Thus one of the key challenges faced by governments is the question of what to do with all these coal mines and oil mills that no one wants?

Because here is the deal: In the long-term, nobody will want them.

According to a detailed IEA report, if the 2050 net-zero scenario is to be met, coal-fired power plants should be phased out completely by 2040. With such ambitious targets and the rising CO2e prices, fossil fuels are bound to become uneconomic. The Financial Times even calculated that 92% of new coal-power facilities under construction will cost more to build than the future cash flow they would generate.  

Here is an example:

Today’s global average greenhouse gas emissions intensity of oil production is just under 100kg of CO2e per barrel. By 2030, the CO2e price in advanced economies will be around $100 per tonne of CO2e, which would add another $10 to the cost of producing just one barrel of oil at today’s level of emission intensity.

This scenario inevitably brings a multitude of challenges with it – for the fossil fuel industry, but especially also for those who work in it. Because even if we want them to, fossil fuels won’t just disappear from one day to the next. As a matter of fact, it will take years to divest from coal and other climate-harming industries.

#3: Is carbon capture really a good investment?  

Let’s be honest: it would be a dream come true if you could just capture the CO2e released by burning coal for instance, before it’s released into the atmosphere. If there was a technology that allowed us to do that, couldn’t we just keep pumping climate-harming gases into the air?

The short answer is no.

Such a technology does not exist at the moment, and – to put it quite frankly – it does not look like it will exist in the near future. But what is “carbon capture” technology even?

Carbon capture:

Carbon capture (CCUS) technologies involve the capturing and storing of carbon dioxide from fuel combustion or industrial processes before it is released into the atmosphere. The CO2e that is removed is converted into a liquid and pumped underground, preventing the carbon from escaping back into the atmosphere.

According to the IEA, CCUS plays an important role in reaching net-zero targets by providing a way to tackle emissions from existing assets, especially addressing emissions from some of the most challenging sectors, where low-carbon alternatives are limited.

However, climate activist organizations such as Friends of the Earth see the carbon capture scheme as too expensive, technically difficult and under-delivering in the time at hand. Currently, there are only 26 CCUS plantsoperating globally, capturing only about 0.1% of the annual global emissions from fossil fuels – not exactly a significant amount.

The irony in the currently existing projects is that 81% of the carbon captured to this day was used to extract more oil from existing wells, thus releasing fossil fuels that would otherwise have had to be left in the ground. Although the technology is featured prominently in the IEA net-zero scenario, it is clear that its efficiency and deployment would have to accelerate significantly if it is supposed to play a meaningful role.

#4: Do we have enough water?

One resource that is often overlooked in our quest to transform the energy sector – a resource that is becoming increasingly sparse in many parts of the world – is water.

While some technologies, such as wind and solar, require little water, others, like biofuels or carbon capture, can have significant water demands. This just goes to show that water needs to be factored into the decision-making of governments, countries — and sustainable investors. And that is best done before billions of euros are spent on expensive carbon capture technology, just to realise that water resources are insufficient to meet the newly created demand.

According to research by the IEA, the energy sector's water consumption may increase by 50% by 2050. Water scarcity is already an issue in the renewable energy sector and is bound to increase in the future, as renewable energy projects are scaled up. It is thus an urgent topic to discuss if the viability of renewable energy projects is to be guaranteed in the future.

Global water consumption in the energy sector by fuel type
SOURCE: IEA

#5: What about developing countries?

Newer, cleaner energy is great, there is no doubt about that. However, as the world’s richest economies invest in a greener future, it’s vital for us all that poorer nations don’t get left behind.

Why? Here’s why:

Developing and emerging countries make up two-thirds of the world’s population, but only one-fifth of global clean-energy spending. The irony is that, at the same time, around 80% of global CO2e emissions come from emerging and developing countries. ⁠Simply because worldwide production is concentrated where production costs are the cheapest. (That’s why, for example, Bitcoin is currently unsustainable because 65% is mined in China where electricity is cheap and far from green.)


As a new IEA report shows, clean energy investment in poor countries must even increase 7-fold to reach net-zero emissions by 2050. ⁠A few wise words on “how to best switch to renewable energy” will not help developing and emerging economies. If the fight against the climate crisis is to be won, the richest countries will have to chip in to provide the necessary funding to developing and emerging markets. ⁠At the end of the day, what we need to remember is this: Emissions are emissions everywhere, and emissions from Dhaka or Jakarta are just as important as from France or Germany.

Conclusion

If this article makes one thing very clear it’s this: When it comes to reducing emissions in the energy sector, there is no single pathway.

From funding renewables in developing countries to capturing and storing CO2e before it escapes to realizing the potential of hydrogen – there are a lot of different scenarios and opinions on the future of energy, specifically on finding the “best net-zero strategy”.  

But what’s clear is this: we won’t find out unless we try! The switch to a cleaner energy sector may seem costly at first, but in the long run, the costs of hesitating too long will be much higher.

In a combined effort, governments, countries, established industry players, and investors must use their money to boost investments in low-carbon technologies, such as carbon capture, hydrogen, and offshore wind. Funds must be realized to step up R&D spendings in relevant areas that require improved technology (such as battery technology and CCUS).

But in all this, we should never forget one thing: the proposed challenges must be fair, inclusive, and leave no one behind. This ultimately means that the developing world needs to receive the required funding and assistance to be able to reach energy-related emissions reduction goals. At the end of the day, no one is helped if the Western world is fully carbon-neutral while developing countries keep increasing their use of coal because they are lacking alternative energy sources.

Don’t miss out.
Sign up for your weekly dose of financial news.
Thank you! Your submission has been received!
Please confirm via the email we just sent you.
Oops! Something went wrong while submitting the form.
YES