Two contrasting scenarios depict challenges to net-zero by 2050 amid energy crisis

As the global energy crisis continues to unfold, pushing energy security to the forefront, Norway’s state-owned energy giant Equinor ponders in its new report what this will mean for the long-term energy transition outlook and how the industry can overcome the current obstacles to reach climate change goals and secure a sustainable energy future.

Equinor’s Energy Perspectives 2022 report dives into long-term developments in the world’s energy markets, outlining how politics, technologies, companies, and consumers can influence this to enable the energy transition. With this in mind, the report points out 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. Equinor underscores that this will take time and is by no means guaranteed, especially when geopolitical conflicts rise on the political agenda.

Commenting on this, Eirik Wærness, chief economist in Equinor, remarked: “Russia’s invasion of Ukraine earlier this year has not only tragically impacted the lives and livelihoods of those directly affected, but the associated geopolitical tensions have also further deteriorated global cooperation, trade and supply flows on which a sustainable energy transition is completely dependent.”

Furthermore, Equinor’s report highlights that the security of supply has come to the forefront of the energy policy agenda, with rising prices and significant increases in the overall cost of living, keeping energy affordability firmly on the agenda. However, the Norwegian player emphasises that even though the climate challenge will remain “as a long-term driver for decarbonisation of our energy system,” a short to medium-term focus should also be expected on those options addressing increased energy security and affordability.

Anders Opedal, President and CEO of Equinor, stated: “In these testing times, we must stay focused on the longer-term transformative measures and structural changes needed for a sustainable energy future. Reaching the goals of the Paris Agreement is an immense challenge and will require continuous engagement, collaboration and commitment from governments, industries, investors, and consumers alike.”

Within the short-term outlook part of this report, Equinor forecasts that energy security will be a key policy priority with energy weaponised due to Russia’s war in Ukraine. As the EU has committed to shutting out Russian hydrocarbons, the report predicts that before Russian gas becomes obsolete, Moscow will do what it can to make sure gas shortages make the next couple of winters in Europe “economically and politically challenging.”

Build out of renewable capacity across Europe will be accelerated as part of the REPowerEU ambition, with lifetime extensions of coal and nuclear power plants helping to fill the supply gap in the short term while Russian oil and gas will find other outlets than Europe, with increased supply available to the domestic markets and export to Asia.

According to the report, the EU will not abandon its energy transition and climate goals, but these will be “more painful than anticipated” to achieve. Meanwhile, Opec+ will seek to continue to wield its market power and sustain high oil prices, thus, cooperation and unity on “addressing climate change could be in jeopardy,” as disclosed within the report.

The U.S. contribution to tackling climate change is seen within this report as “a wild card,” as even with “the positive momentum” of the Inflation Reduction Act, the election of a Republican president in 2024 could “fast overturn” Biden’s policies on climate, energy, trade, and security (Nato). The report also indicates that the U.S. global leadership will be hampered in the short-term by “internal divisions and isolationist impulses.”

Energy Perspectives, which was prepared by Equinor analysts, presents two distinct scenarios – called Walls and Bridges – for the world economy, international energy markets and energy-related greenhouse gas emissions. Equinor says that these scenarios are not predictions but “possible contrasting pathways, providing a platform for debate and decision-making.”

As the scenarios illustrate very different future pathways, they aim to highlight the “immense challenges that must be overcome” to make the move from the “slow, incremental changes” that characterise the energy transition today – as depicted in Walls – to the “radical changes” needed to move the world onto a path aligned with the 1.5°C ambition of the Paris agreement, as seen in Bridges.

“Walls divide and bridges connect. Our new scenarios paint a large outcome space for what the long-term energy future might look like based on choices made today and going forward,” says Wærness.

The report states that in the Walls scenario, the energy intensity of the global economy improves by 2 per cent per year between 2020 and 2050, which is “significantly higher” than the average of 1.2 per cent per year for the 1990-2019 period, driven by a strong focus on energy efficiency. Some regions accomplish even more impressive improvements than the average: the European Union and parts of Asia drop their energy intensities between 2.5 per cent and 3 per cent per year.

This is contracted with the Bridges scenario, where the energy intensity of the global economy improves by an average of 3.1 per cent per year between 2020 and 2050, with all regions making significant contributions. Equinor claims that technologies that make this possible are “conceivable” but would require “significant and sustained policy support and financing” to make them a reality.

For Equinor, balancing energy security, affordability and decarbonisation is “the key to a sustainable energy transition” towards 2050, amid the turmoil in global energy markets. Based on the two scenarios the peak demand for fossil fuels arrives before 2030. While in Walls, the peak occurs in 2026, followed by a gentle downward trajectory, in Bridges, fossil fuel demand declines at a rapid pace after 2025. By 2050, all remaining fossil fuel use is either fully abated or compensated by carbon removal.

In Walls, the share of fossil fuels steadily decreases to 62 per cent in 2050 from the current 80 per cent with fossil fuel use only beginning to fall in the 2030s to be 20 per cent lower in 2050 compared with 2019. Contrastingly, the Bridges scenario sees the share of fossil fuels in total primary energy fall to 67 per cent in 2030 and to 22 per cent in 2050 while fossil fuel use in 2050 is a fifth of its current level.

While oil demand is declining as the energy transition continues to gain momentum, the report elaborates that several years of “underinvestment” in upstream projects have raised concerns over supply shortages and fears that supply may decline faster than demand. Therefore, energy security remains “a key factor in the energy trilemma and renewed upstream investment in the medium term may be seen.”

In Walls, oil demand peaks in the late 2020s, followed by a decrease of 18 per cent – 19 mbd – by 2050, as the energy transition drives demand down while the projection for oil in Bridges, which peaks in 2019, is governed by the energy transition with policies, technology and behavioural changes driving total demand down 70 per cent – 69 mbd – from 2025 to 2050.

On the other hand, the report indicates that gas demand will continue to grow in Walls, but decline sharply in Bridges. In line with this, the Walls scenario shows that gas demand peaks in 2041 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 quarter of today’s level in 2050.

Moreover, energy consumption is anticipated to shift towards electricity with Walls expecting electrification to accelerate steadily towards 2050, increasing its share by half and in Bridges, a massive acceleration happens before 2030. By 2050, the share exceeds 50 per cent, two and a half times as large as today.

In addition, Equinor’s report states that electrification and hydrogen-based fuels will contribute to the decarbonisation of transport with both scenarios noting that electric vehicles will replace internal combustion engines in road transport. Additionally, further decarbonisation is achieved in Bridges by increasing the use of hydrogen-based fuels in marine and air transport.

In the Walls scenario, the roll-out of hydrogen starts to accelerate in the 2030s and in the overall energy mix, hydrogen demand remains small at less than 2 per cent of the total energy demand by 2050, with green hydrogen making up 40 per cent. Regions with the highest hydrogen demand in this scenario are Europe, Asia, and the U.S. while hydrogen demand takes off in the industry sector, replacing some grey hydrogen, as well as the transport sector, in particular in shipping where it meets 18 per cent of demand in 2050 through conversion to ammonia.

The Bridges scenario, by contrast, shows the share of hydrogen in the energy mix rapidly increasing, reaching 9.8 per cent in 2050, driven by a need to replace the remaining emissions from gas power generation. In this scenario, China sees the fastest growth in demand in the short term, reaching 53 per cent of the global total in 2030, and remains the biggest consumer, even though its share shrinks to 30 per cent by 2050. The share of green hydrogen production increases rapidly and by the mid-2030s is more than half of production, exceeding 80 per cent by 2050.

In its report, Equinor underlines that the energy supply security and energy decarbonisation criteria call for many of the same long-term solutions such as the prioritisation of energy efficiency measures and an accelerated shift from imported fossil fuels to indigenous renewable energy sources, meaning in most cases wind and solar power.

With this in mind, both scenarios underline that the growth of wind and solar photovoltaics (PV) capacity is expected to outrun all previous trends. In lieu of this, Walls forecasts wind capacity to be six times greater, and solar PV capacity 12 times greater in 2050 compared with today. However, the Bridges scenario illustrates a much bigger growth with wind capacity being 12 times greater, and solar PV capacity 27 times greater in 2050 compared with today.

Equinor confirms that carbon capture, utilisation and storage (CCUS) is expected to play “an essential role” in the decarbonisation of the power and industry sectors, thus, CCUS on both coal and gas starts to accelerate after 2030 in Wells, while in Bridges, there is “massive growth” in CCUS even before 2030, and no unabated fossil fuel use remains in 2050. The total CCUS on fossil fuel use in Bridges increases to 2.2 Gt per year by 2050, which is approximately double the amount assumed in Walls.

The report emphasises that current net-zero commitments are “not enough to avoid global warming above 1.5°C.” Therefore, the 1.5°C budget is exhausted by 2032 in Wells but in Bridges, 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. In Bridges, the world becomes net-zero in the mid-2040s, with more developed regions having to go net negative in the early 2040s to allow other regions more time to reach the target.

The report further points out that total energy consumption will peak later in emerging than in industrialised regions with global energy consumption peaking in 2039 and 2025 in Walls and Bridges, respectively. Equinor’s report claims that China is the largest energy consumer globally today and remains so throughout the scenario period in both Walls and Bridges. In accordance with this report, North America, followed by the industrial Asia Pacific, exhibits the highest per capita energy consumption, currently consuming up to ten times more than emerging regions such as India, Africa, and other parts of Asia Pacific, where energy demand does not increase significantly in either scenario.

Following initial curtailed economic growth, Bridges assumes that the energy transition offers “a small global GDP benefit by 2050.” Compared to Walls, Bridges sees initially lower growth as consumers in industrialised economies are hit by reduced purchasing power. However, climate impacts in Bridges are reduced over time and higher consumption growth filters through as carbon taxation pressure eases. Equinor also points out that Bridges suffers some efficiency loss, for example, a share of the fossil fuel infrastructure will be replaced before the end of working life, but still outpaces Walls’ growth rate from around the mid-2030s onwards.

“Energy shortage, security of supply concerns and rising energy prices may slow the energy transition in the short-to-medium term. In the longer term, inflation, interest rates and economic growth will impact investment decisions and ways of funding the transition,” explains Equinor.