DNV GL: COVID-19 alone not enough to hit Paris climate goals

The COVID-19 pandemic will have a dramatic impact on energy supply and demand in the short term and will have lasting impacts once the pandemic dissipates but on its own will not be enough to advance the world’s progress towards the Paris climate ambitions, classification society DNV GL said.

DNV GL said
that its energy forecast was predicated on IMF’s longer outbreak scenario,
where World GDP will shrink 6 per cent in 2020 with lingering effects of the
pandemic reducing World GDP in 2050 by 9 per cent, relative to pre-pandemic
forecasts.

Even with
slower growth, though, the 2050 world economy will, according to DNV GL, still
be twice its size today. In contrast, energy demand will not grow and will stay
about the same as it is today, despite a larger population and world economy.

This is
largely due to significant improvements in energy intensity, but also due to
the effects of COVID-19.

Before the pandemic, DNV GL predicted total global energy demand in 2050 at 456 exajoules (EJ) with the latest historical figures at 424 EJ in 2018.

The new
model now shows that the pandemic will reduce energy demand through to 2050 by
8 per cent, resulting in energy demand in 2050 at almost exactly the level it
was in 2018.

Improvements
in energy intensity will remain the most important factor in reducing energy
demand in the coming decades, and the contraction due to COVID-19 comes on top
of this.

DNV GL
believes that lasting changes linked to COVID-19 are mainly behavioural and
include the impact of the pandemic on the transport sector, especially
aviation, but also on less office work and changed commuting habits, which will
result in transport energy use never again reaching 2019 levels.

On the face
of it, this appears to be good news for decarbonization – transport remains
heavily oil-dependent and iron and steel are the so-called ‘hard to abate’
sectors, relying to a large degree on hydrocarbons to supply high-heat
processes.

Declining
demand in these sectors is one of the main reasons for the price weakness in
hydrocarbons, with widespread write-downs in oil and gas assets. It appears
likely that oil has already reached a supply plateau that DNV GL forecast would
occur in 2022, before factoring in the pandemic.

The classification firm claims that it is certainly not game over for hydrocarbons, and especially not for natural gas, which it forecasts to take over from oil as the largest energy source in this decade.

However, the
reduced return on capital and increased volatility in fossil fuel prices make investors
look at these assets in the post-COVID world with a greater degree of caution
with a more favourable look at renewables assets.

“Renewables have first place in the merit order of the power mix due to their very low operating costs, and short design and construction times. These assets are therefore more robust, and we predict a slightly faster recovery of the non-fossil capital expenditure in the next couple of years than will be the case for fossil energy”, DNV GL stated.

With the
earlier than anticipated plateauing of oil, the forecast shows that CO2
emissions most likely have already peaked in 2019.

This appears
to be good news from a climate goals perspective – but the longer-term decline
in emissions is not significantly accelerated by the pandemic.

With peak
emissions already passed and flat energy demand through to 2050, the energy
transition is still not fast enough to deliver the Paris ambition of keeping
global warming well below 2°C above pre-industrial levels.

According to
DNV GL, the world would need to repeat the decline we’re experiencing in 2020
every year from now on to reach a 1.5-degree target.

“To put this in perspective, the COVID-19 impact on energy demand only buys humanity another year of ‘allowable’ emissions before the 1.5°C target is exhausted (in 2029) and a couple of years before the 2°C warming carbon budget is exhausted (in the year 2050)”, the classification society said.

The key to
reaching the Paris goals, DNV GL said, remains policy – the political choices
and policy delivered around the world that encourages the correct behavioural
changes and enables the right technical solutions to scale.

Policy also
represents the main uncertainty as to whether the pandemic will speed up or
slow down the energy transition.

It is
unclear whether the enormous COVID-19 economic stimulus packages being lined up
by governments will be spent wisely on renewable energy sources, or
expeditiously on fossil sources in the hope of bringing larger numbers of
people back to employment more rapidly. DNV GL stated that both directions were
being pursued, with strong regional variations.