Johan Sverdup field in the North Sea; Credit: Lizette Bertelsen & Jonny Engelsvoll/Equinor

Speed and scale of ‘fragmented’ energy transition not up to par with net-zero by 2050 targets

While the world is putting the wheels into motion to decarbonise the energy sector with a new raft of policy and technological measures springing up left and right, Norway’s state-owned energy giant Equinor outlines in its new report that the 1.5-degree goal set in the Paris Agreement is becoming increasingly difficult to achieve.

Johan Sverdup field in the North Sea; Credit: Lizette Bertelsen & Jonny Engelsvoll/Equinor

As the slow, incremental change takes root over the energy transition stage, Equinor’s Energy Perspectives 2023 report dives into long-term developments in the world’s energy markets, looking into the efforts required to scale up the move towards a sustainable energy future.

The company’s report contemplates the long-term energy transition outlook, focusing on what the industry can do to overcome the current obstacles, driven by factors such as geopolitics, technology, climate and energy policy, and company and consumer behaviour.

In a bid to reach climate change goals, energy demand projections are made in this report, however, the Norwegian player is adamant that the world is far from being on track to meet the targets and ambition set out in the Paris Agreement. As increased levels of geopolitical conflict have made the energy transition “more fragmented,” Equinor claims that positive developments are in many cases offset by negative ones.

Eirik Wærness, Chief economist at Equinor, remarked: “The continued war initiated by Russia’s invasion of Ukraine and the challenges with inflation and cost of living are putting a damper on absolutely necessary energy transition measures.

On the other hand, it is encouraging to see that substantial progress has been made in some areas such as solar PV and electric vehicle deployment. Despite short-term setbacks, the longer-term signals clearly point in the direction of decarbonisation, but speed and scale are uncertain.”

Courtesy of Equinor

The previous year ushered in a global energy crisis, which hit several sectors. Many are of the opinion that Europe has been hit the hardest, which led to unprecedented measures to sustain a balance in the supply and demand of natural gas.

Based on Equinor’s report, emerging economies in Asia had to increase their use of coal to satisfy their energy demand, partly because of Europe’s measures to secure global LNG to counter the loss of Russian volumes.

Anders Opedal, President and CEO of Equinor, commented: “With energy security and affordability high on the agenda, we’ve turned every stone to maximise our energy deliveries to Europe. At the same time, we have contributed to a balanced energy transition by advancing renewables and low-carbon solutions projects.”

Building Walls and Bridges on the road to net-zero

In its report, Equinor analysts showcase two distinct scenarios – called Walls and Bridges – for the world economy, international energy markets, and energy-related greenhouse gas emissions. These scenarios begin their energy transition story at the current level and look into ways to accelerate the progress being made to reach the speed required to achieve the goals of the Paris Agreement.

Both of these scenarios share near-identical paths up until 2025, at which point they start to diverge with Walls showing a pathway of where the world could go if it continues to broadly follow current trends, whilst Bridges illustrates a pathway the world would need to follow to reach the 1.5°C target. The difference between the two is seen in the relative force of the transition drivers and the extent to which they influence the future path of the global energy system after 2025 in addressing the climate challenge.

In line with this, Equinor points out that the Walls scenario signals a path of substantial energy transition, but falls short of Paris-consistent climate ambitions for 2050. This is due to the increased levels of geopolitical conflict, triggered by the Ukraine crisis, which have made the trade-off between the three criteria of the energy trilemma – energy affordability, energy security, and energy decarbonisation – more challenging.

Therefore, the Norwegian state-owned giant highlights that walls have become “thicker and higher” in many ways despite the incorporation of expected positive consequences of the Inflation Reduction Act in the U.S. and further changes in energy and climate policies in the EU.

On the other hand, the Bridges scenario, which is described as a normative scenario aligned with the 1.5-degree global warming ambition in the Paris Agreement, requires a low geopolitical conflict level, common solutions to common challenges across regions, sharing of technology and financial support from industrialised countries to developing countries.

For Equinor, Walls signify the abundance of barriers blocking fundamental and accelerated change in the global energy system while Bridges represent the overcoming of these barriers and the impetus towards accelerated change. As a result, the Walls scenario does not deliver on the energy transition needed to reach climate ambitions, whilst Bridges does so.

While the peak demand for fossil fuels arrives before 2030 in both scenarios, the peak occurs in 2026 in Wells, followed by a gentle downward trajectory. In Bridges, fossil fuel demand declines at a rapid pace after 2025, thus, by 2050, all remaining fossil fuel use is either fully abated or compensated by carbon removal.

Courtesy of Equinor

Even though the gas demand will continue to grow in Walls, it declines sharply in Bridges. In light of this, gas demand peaks in 2039 in Wells and is around 10 per cent higher than today’s level in 2050 while in Bridges, gas demand peaks in 2025 and falls to around a third of today’s level in 2050.

Both scenarios depict a shift in energy consumption towards electricity, as electrification accelerates steadily towards 2050 in Wells, increasing its share by half while in Bridges, a massive acceleration happens before 2030 and by 2050, the share exceeds 50 per cent, two and a half times as large.

Moreover, wind and solar photovoltaics (PV) capacities show significant growth compared to 2020 levels in these two scenarios. While in Wells, wind and solar PV capacities are five and nine times greater, respectively, in 2050 compared with today, in Bridges, wind capacity is eight times bigger, and solar PV capacity is 13 times greater in 2050 compared with today.

As electrification and hydrogen, including derivatives, are seen as tools that will contribute to the decarbonisation of transport, in both scenarios, electric vehicles replace internal combustion engines in road transport but to a different extent. In Bridges, further decarbonisation is achieved by increasing the use of hydrogen, including its derivatives in marine and air transport.

In addition, Equinor elaborates that the demand for minerals needed to support the energy transition is set to increase significantly. In Walls, the demand for such minerals doubles by the early 2030s compared with the average annual demand from 2016 to 2020. In contrast, the Bridges scenario outlines that demand peaks by 2035 and then drops towards 2040 driven by mineral intensity improvements and a slowdown in new annual capacity additions.

“The role of critical minerals and rare earth elements (REEs) in the energy transition is receiving substantial attention as unprecedented demand, declining reserves, and increasingly complex supply chains are challenges that need to see solutions,” added Wærness.

Furthermore, Equinor believes that carbon capture, utilisation and storage (CCUS) will play “an essential role” in the decarbonisation of the power and industry sectors. The Walls scenario predicts that CCUS on both coal and gas will start to accelerate after 2030, while in the Bridges scenario, there is massive growth in CCUS even before 2030. There are also extensive contributions from carbon removal technologies and practices after 2030.

Courtesy of Equinor

The Norwegian player is of the opinion that current net-zero commitments are not enough to avoid global warming above 1.5°C. The Wells scenario underlines that the 1.5°C budget is exhausted by 2033 while the Bridges scenario indicates that current commitments are met, and further commitments are made that enable emissions to remain within the 1.5°C carbon budget with the help of carbon removal technologies.

This report comes nine months after Equinor’s Energy Perspectives 2022 report, which underscored that “trust, cooperation, and burden-sharing must be established” to bring the world on track to address long-term sustainability challenges in a balanced manner.

“Another year has passed by with only moderate progress and that amplifies the massive shortcomings of actual energy transition measures compared to stated ambitions,” emphasised Equinor.