The impending global energy transition is exciting – and it will have wide-ranging implications for the global climate, for business and for consumers. But at what speed is the transition moving – and more importantly, how fast will it go? Will our energy future be fundamentally different from the one we know today?
A new report from the World Economic Forum’s Global Future Council on Energy explores these questions by looking at recent development and potential future scenarios.
What's the World Economic Forum doing about the transition to clean energy?
Moving to clean energy is key to combatting climate change, yet in the past five years, the energy transition has stagnated. Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago.
Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.
Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.
To future-proof the global energy system, the Forum’s Shaping the Future of Energy initiative is working with projects including the Partnering for Sustainable Energy Innovation, the Future of Electricity, the Global Battery Alliance and Scaling Renewable Energy to encourage and enable innovative energy investments, technologies and solutions.
Is your organisation interested in working with the World Economic Forum? Find out more here.
There are two possible narratives: one of a gradual energy transition and one of rapid energy transition. And each narrative has its own advocates, and can be underpinned by facts.
Advocates of the rapid transition point to fast declines in costs and rapid growth in solar and wind energy, electric vehicles and digitalization of energy as well as decentralized energy solutions centred on customers as signs the transition is already happening quite fast – and will further accelerate, leading to transformative change in the next few decades. Advocates of gradual transition, on the other hand, point to the size of the global energy system and its traditional slowness in changing, as well as continuous growth in global demand and energy-related greenhouse gas emissions – trends that may continue as global populations and economies grow.
The gradual narrative says the energy world of tomorrow will look roughly the same as today. Gradual scenarios extrapolate current patterns of policy, industry, consumption and investment decisions implying the global energy system has strong inertia and the transition to true low-carbon systems will take many decades. The rapid narrative, meanwhile, says new energy technologies are quickly supplying all growth in energy demand, leading to peak fossil fuels demand in the 2020s. Rapid scenarios suggest current technologies and new policies will reshape markets, business models and patterns of consumption, challenging carbon-intensive investments and opening the way to a low-carbon global economy.
What the transition means for the Paris Agreement
Since energy consumption and production roughly represent two-thirds of global GHG emissions today, the difference between a gradual and rapid energy transition will largely determine the climate future of humanity. A gradual transition will mean the goals of the Paris Agreement will be badly missed. A rapid transition will give humanity a chance to meet the goals of the Paris Agreement and keep climate change well below 2 degrees Celsius.
The new report describes how the two narratives—gradual and rapid—are distinguished by four main features and how views on these issues largely determine conclusions on where we are heading.
1. What matters: To predict and understand the energy future, should we focus on how the energy system is today and the global energy mix and trends of past years? Or, should we focus on what is changing – such as growth in electricity consumption, renewables production and smart digital energy solutions?
2. Pace of technology growth: Will we see linear developments with steady improvements, or exponential developments with tipping points in cost and consumer adoption creating more fundamental systemic change?
3. Policy: Will policies affecting energy and climate be static, as policymakers remain cautious, or dynamic, as new technologies and climate concerns create a new environment for policymaking?
4. Emerging markets: Will emerging markets follow the path taken by developed markets historically with a high share of fossil fuels, or will they leapfrog to new lower-carbon energy technologies at scale?
The narratives can become self-fulfilling
Actions often follow beliefs. If energy companies, investors and policymakers believe future energy demand and supply structures will be broadly the same as today, they will invest and implement policies accordingly, locking in the current system. If they believe rapid change is likely, they will invest in and legislate for new opportunities, speeding up the transition.
Therefore, an interconnected feedback loop between governments, technology, industry, society and finance can increase speed of transition – or slow it down. To put a positive spin on it, society demands clean energy sources. Politicians are applying regulatory pressure to reflect society’s wishes – bolstered by the fact technology costs have come down and new jobs can be created. Financial markets react to regulation and societal pressure, deploying capital towards new technologies where new opportunities are emerging, and entrepreneurs and industry invent and bring superior solutions to the market.
The next 10 years will determine whether the rapid or the gradual scenario will play out. To see which narrative will prevail, watch the cost and growth rates of the key disruptive technologies – solar, wind, batteries, EVs and green hydrogen. In policy, focus on whether politicians implement more rigorous actions to meet global climate goals. In emerging markets, the question is whether China and India will be able to continue to implement new clean energy and energy efficiency technologies at scale and whether they will be followed by South-East Asia and Africa.