On the same day, the UN Environment Programme (“UNEP”), released its Emissions Gap Report for 2022, which indicates that the various international net-zero pledges and climate-related initiatives may still not be enough to combat global warming. Amidst the release of both the UN and IEA reports, a key aspect of the net-zero conversation took place in Washington, D.C., as nuclear energy leaders convened at the International Atomic Energy Agency’s (“IAEA”) Ministerial to discuss nuclear’s critical role in the clean energy transition, and ultimately, the goal of reaching net-zero by 2050.
We discuss each below.
IEA World Energy Outlook
The overall takeaway from the 524-page World Energy Outlook report is that Russia’s invasion of Ukraine is a driver of the current global energy crisis, and that this crisis has caused a spike in the use of coal as countries tried to find alternatives to Russian natural gas and bring down high fuel costs, but this spike is temporary as the globe transitions to cleaner energy sources – though the transition is slow and requires investment and public-private support. To drive these points home, the report, which follows the IEA’s previous report from July 2022 that we blogged about here, forecasts current global energy trends out to 2050. The forecasts and trends are based on three scenarios that are differentiated by assumptions made about government policies. The scenarios include (1) the Stated Policies Scenario (“STEPS”), which shows the trajectory implied by today’s policy settings, (2) the Announced Pledges Scenario (“APS”), which assumes that all aspirational targets announced by governments are met on time and in full, including their long-term net zero and energy access goals, and (3) the Net Zero Emissions by 2050 (“NZE”) Scenario, which maps out a way to achieve a 1.5 °C stabilization in the rise in global average temperatures, alongside universal access to modern energy by 2030. See Report at 20.
According to the report, energy markets remain extremely vulnerable and today’s energy shock is a reminder of the “fragility and unsustainability of our current energy system.” See Report at 19. While the report ultimately blames the global energy crisis on Russia’s invasion of Ukraine, it also concludes that the crisis is likely to speed up the global transition away from fossil fuels and toward clean energy technologies, and that rapid transitions depend on investment. See Report at 20-23, 59.
And although the IEA predicts that the shift to cleaner sources is not happening fast enough to avoid dangerous levels of global warming, see Report at 187, as markets rebalance, the rise in coal from today’s crisis is temporary and renewables, supported by nuclear power, see Report at 20, and will continue to see, sustained gains. Id.
The report also examines energy policy commitments and market changes of individual countries around the globe, and specifically discusses U.S. legislative commitments in the Infrastructure Investments and Jobs Act of 2021 and the Inflation Reduction Act of 2022, both of which contain financial incentives for the clean energy transition generally, and specifically, provide funds and incentives for sustaining and developing nuclear energy. See Report at 68.
Below is an overview of key takeaways from the IEA Report across the different scenarios.
- Impacts of the energy crisis
- Faced with energy shortfalls and high prices, governments in advanced economies have committed well over $500 billion to shield consumers from the immediate impacts. This includes securing alternative fuel supplies and ensuring adequate gas storage. Other short-term actions have included increasing oil- and coal-fired electricity generation, extending the lifetimes of some nuclear power plants, and accelerating the flow of new renewables projects. See Report at 19.
- Temporary increase in fossil fuels
- For the first time, each IEA scenario based on prevailing policy settings shows global demand for all fossil fuels exhibiting a peak or plateau. In the Stated Policies Scenario (“STEPS”), coal-use falls back within the next few years, natural gas demand reaches a plateau by the end of the decade, and rising sales of EVs mean that oil demand levels off in the mid-2030s before ebbing slightly to mid-century. The IEA projects that total demand for fossil fuels will decline steadily from the mid-2020s by around 2 exajoules per year on average to 2050, an annual reduction roughly equivalent to the lifetime output of a large oil field. See Report at 21.
- The share of fossil fuels in the global energy mix has been high—at around 80%—for decades. By 2030 in the STEPS, this falls below 75%, and to just above 60% by 2050. A high point for global energy-related CO2 emissions is reached in the STEPS in 2025, at 37 billion tons (Gt) per year, and falls back to 32 Gt by 2050. This would be associated with a rise of around 2.5 °C in global average temperatures by 2100—an improvement from earlier projections a few years ago. See Report at 21, 43.
- Clean energy transformations
- Supply chains for key technologies – including batteries, solar PV and electrolyzers – are expanding at rates that support higher global ambition. These clean energy supply chains are a huge source of employment growth, with clean energy supply chain jobs already on track to exceed those in fossil fuels worldwide and projected to grow from around 33 million today to almost 55 million in 2030 in the APS. See Report at 22.
- Today’s high energy prices underscore the benefits of greater energy efficiency and are prompting behavioral and technology changes to reduce energy use. For example, in the STEPS, cooling demand in emerging and developing economies rises by 2,800 terawatt-hours to 2050, which is the equivalent of adding another European Union to today’s global electricity demand. This growth is reduced by half in the Announced Pledges Scenario (“APS”) because of tighter efficiency standards and better building design and insulation – and by half again in the Net Zero Emissions by 2050 (“NZE”) Scenario. Id.
- As part of the NZE Scenario, the report notes that electricity becomes the new linchpin of the global energy system, providing more than half of total final consumption and two‐thirds of useful energy by 2050. Total electricity generation grows by 3.3% per year to 2050, which is faster than the global rate of economic growth across the period. Annual capacity additions of all renewables quadruple from 290 GW in 2021 to around 1 200 GW in 2030. And with renewables projected to reach over 60% of total generation in 2030, no new unabated coal‐ fired plants are needed, and annual nuclear capacity additions to 2050 are nearly four‐ times their recent historical average. See Report at 121.
- Rapid transitions depend on investment
- An increase in energy investment is essential to reduce the risks of future price spikes and volatility, and to get on track for net-zero emissions by 2050. From $1.3 trillion today, clean energy investment rises above $2 trillion by 2030 in the STEPS, but it would have to be above $4 trillion by the same date in the NZE Scenario, highlighting the need to attract new investors to the energy sector. Governments should take the lead and provide strong strategic direction, but the investments required are beyond the reaches of public finance. It is vital to harness the vast resources of markets and incentivize private actors to play their part. Today, for every $1 spent globally on fossil fuels, $1.5 is spent on clean energy technologies. By 2030, in the NZE Scenario, every $1 spent on fossil fuels is outmatched by $5 on clean energy supply and another $ 4 on efficiency and end-uses. See Report at 23.
- Focus on resilient supply chains to support co-existing energy systems
- A new energy security paradigm is needed to maintain reliability and affordability while reducing emissions. Maintaining electricity security in tomorrow’s power systems calls for new tools, more flexible approaches and mechanisms to ensure adequate capacities. Power generators will need to be more responsive, consumers will need to be more connected and adaptable, and grid infrastructure will need to be strengthened and digitalized. Inclusive, people-centered approaches are essential to allow vulnerable communities to manage the upfront costs of cleaner technologies and ensure that the benefits of transitions are felt widely across societies. See Report at 25.
- Even as transitions reduce fossil fuel use, there are parts of the fossil fuel system that remain critical to energy security, such as gas-fired power for peak electricity needs, or refineries to supply transport fuels. Unplanned or premature retirement of this infrastructure could have negative consequences for energy security. Id.
- As the world moves away from today’s energy crisis, it needs to avoid new vulnerabilities arising from high and volatile critical mineral prices or highly concentrated clean energy supply chains. If not adequately addressed, these issues could delay energy transitions or make them more costly. See Report at 26.
UN Emissions Gap Report
Separately on October 27, the United Nations released its annual “Emissions Gap” report, titled: “The Closing Window: Climate crisis calls for rapid transformation of societies.” According to the report, released by the UN Environment Programme (“UNEP”), there is no “credible path toward the achievement of net-zero targets” in place today, despite promises made at the 2015 Paris Climate Conference to prevent average temperatures rising by more than 1.5C above pre-industrial levels. See UN Report at 36. As it stands today, the latest data indicates that the world is on track for a temperature rise of between 2.4C and 2.6C by the end of this century. See UN Report at XXI, 35.
Despite promises made by governments in favor of reducing their carbon footprint—via so-called “Nationally Determined Contributions” or “NDCs”, pledges made since the last climate summit in Glasgow in 2021 “have barely impacted the temperatures we can expect to see at the end of this century.” See UN Report at XV, 12.For the situation to improve, a “large-scale, rapid” shake-up is needed of our electricity supply, industry, transport and buildings sectors, and the food and financial systems. See UN Report at XXII, 38.
The report details actions nations could take to slash emissions by 45% this decade and stabilize global warming at around 1.5 °C to avoid a drastic increase in heat waves, droughts, flooding and wildfires across the globe.
World efforts are currently not on track to meet this goal. The UN report notes that most countries have announced ambitious “net zero” emissions goals — broad promises to stop adding greenhouse gases to the atmosphere by a certain date — that, if followed, could limit global warming to 1.8 °C. See UN Report at 20-25. The report states these targets are “currently not credible” however, since most countries do not have policies in place to achieve them. See UN Report at XV. And nations have delayed in cutting emissions long enough that they will now have to pursue “rapid transformation of societies” to meet those net-zero goals. See UN Report at XVI.
These international reports were released at the same time the world nuclear energy leaders convened in Washington D.C. to discuss nuclear’s critical role in the same energy crisis at the International Atomic Energy Agency’s (“IAEA”) International Ministerial Conference on Nuclear Power, held on October 26-28. While global decarbonization and energy security were a running theme at the Ministerial, the plenary panel at the IAEA Ministerial was on “Fulfilling the Promise: Achieving Net Zero with Low Carbon Nuclear Energy,” and the speakers included:
- Rafael Mariano Grossi, Director General, IAEA
- William D. Magwood, IV, Director General, OECD-NEA
- Sama Bilbao y León, Director General, World Nuclear Association (WNA)
- Mohamed Al Hammadi, President, World Association of Nuclear Operators (WANO)
- Keisuke Sadamori, Director for Energy Markets and Security, IEA
The session was moderated by blog author, Amy Roma. The session discussed key national drivers for shaping policy support and unlocking the full potential of nuclear energy on the road to a clean energy transition. This includes acknowledging nuclear energy’s contribution to the decarbonization of non-electrical sectors, and tackling the challenge of future deployment and continued operation of nuclear power plants. Director General Grossi of the IAEA also discussed the IAEA’s Report titled “Energy, Electricity, and Nuclear Power Estimates for the Period up to 2050” and the IEA Director Sadamori also referenced two recent IEA reports, one titled “Nuclear Power and Secure Energy Transitions” published in June 2022 and another titled “Breakthrough Agenda Report” published in September 2022. We previously blogged about these reports here and here.
For more information on the latest nuclear and energy transition updates, please contact Amy Roma, Partner, or Stephanie Fishman, Associate.