The IPCC published on April 4th the report of its group 3 dealing with potential solutions to reduce greenhouse gas emissions and mitigate climate change. Its message is clear : there is no time to waste to decarbonize our economy. In parallel, the war in Ukraine has shown the geopolitical difficulties associated with our over-reliance on fossil fuels. Will we finally see an acceleration of the energy transition ?

Carbon Budget: We need to act quickly

The Paris Agreement, signed in 2015, aims a limiting global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. Compared to the period 1850-1900, the Earth has already warmed by 1.1 degrees, and the level of warming is (at first order) directly proportional to the amount of CO2 into the atmosphere. That relationship implies that a given quantity of greenhouse gases may be emitted to stay below a certain level of warming- this is the concept of carbon budget. At the end of 2019, that budget was about 420 billion tons of CO2 to stay below 1.5°C, and 1200 billion tons to stay below 2°C (with a 66% probability in both cases). But in 2019, global CO2 emissions were about 45 billion tons, and close to 59 billion tons equivalent CO2 if one considers all the greenhouse gases.

Staying below 1.5°C implies that emissions must start decreasing already now, and will be almost impossible if they have not peaked by 2025. Then it requires reaching net-zero globally by 2050. With the rebound of global emissions in 2021, after the temporary drop in 2020 caused by the pandemic, humanity consumed about 9% of the remaining budget. There is basically only 30 years to transform an energy system built over the last 200 years, with about 80% of our primary energy still supplied by fossil fuels (oil, gas, coal). The war in Ukraine has served as a reminder of this massive dependency- fossil fuels are responsible for almost 75% of global CO2 emissions. But will this war serve as a catalyst for the energy transition?

Yes: there is a favorable set of converging circumstances for an acceleration of the transition

Already before the war, the deployment of the technologies necessary to decarbonize our energy system was proceeding at a relatively strong pace. Over the period 2010-2015, the installed capacity for solar photovoltaics (PV) and wind power increased at about 15% per year in average. The world wind power capacity increased from 170 GW in 2010 to 740 GW in 2021. For PV, the evolution is even more impressive, the installed capacity went from 40 GW in 2010 to 707 GW in 2021. For the first time, in 2021, those two power sources produced slightly above 10% of the world electricity, 1% more that in 2020 but, more importantly, their share doubled since 2015, the year of the COP21 and the Paris Agreement. More than 200 GW of solar PV are foreseen for installation in 2022. The cost of solar panels has decreased by more than 90% since 2010, while the cost of batteries was divided by 5 between 2014 and 2020. Batteries are a key technology for electric vehicles, but also for electricity storage- which will become more important for a system with a high share of renewables. In California, the large majority of new PV projects are now coupled PV panel/battery systems.

Very quickly after the onset of the war in Ukraine, questions arose about the imports of oil and gas from Russia and how to decrease them or even get rid of them. The International Energy Agency (IAE) published two 10-point plans to decrease the Russian gas consumptions by one third, and the oil consumption by 2.7 million barrels per day (to be compared with the total EU consumption of 19 million barrels per day in 2019) by the end of 2022. The EU announced in March a plan to lower the consumption of Russian gas by 2 thirds by the end of the year- an extremely ambitious claim given than 40% of the gas used in Europe comes from Russia. An embargo on Russian coal has already been enacted. At the time of writing, a proposal to ban Russian oil is under discussion, while discussions about an embargo on gas are intensifying. Although there are big plans and discussions about replacing part of that gas with LNG, it is not clear that all the EU consumption can be replaced, and certainly not so quickly. In parallel, the acceleration of renewables deployment and a reduction in energy use (through efficiency or demand reduction) will both be necessary and will act to accelerate the transition away from fossil fuels. The price of the latter is in any case likely to remain elevated for the foreseeable future, especially since many oil and gas companies have decided to stop their activities in Russia, which is very dependent on US technologies in that field. Germany has increased its ambitions towards energy transition with an objective of 80% of low-carbon electricity by 2030.

Energy transition, climate change, energy independence, and prices, all seem to be playing in the direction of an acceleration of the move away from fossil fuels.

No: the inertia of our dependence is too large

Globally, CO2 emissions still have not started to decrease, even if over the decade 2010-2019, the rate of increased (1.3% per year) was lower than during the 2000-2009 period (2.1% per year). If investments in upstream oil and gas are on a decline and their trajectory is more or less in line with a trajectory compatible with climate goals, investments in low-carbon alternatives are way too small. A recent study showed that if solar PV and wind are deployed at paces of about 0.5-1% of the total installed capacity per year, this rate is much lower than what is required to stay below 1.5 degrees. The 2021 energy crisis and the war in Ukraine have also induced a strong rebound in the use of coal. Although coal use was on a slow decline since 2014-2015, electricity production from coal broke an all-time record in 2021. In February, discussions were ongoing in Italy about re-opening coal power plants. If the pipeline of new coal power plants has been decreasing for the last few years, new plants are still being built and put in operation- although the majority of coal power plants should actually be closed by 2030 in a 1.5 degrees scenario.

While renewables are economically competitive against coal in many countries, the strong increase in metal prices over the last 18 months may strongly affect the planning for new projects- not to mention the difficulties in the global logistics system. Metals account for 15% and 20% of the costs of solar PV and wind, respectively. For batteries, metals used for the electrodes (lithium, cobalt, manganese) account for roughly half of the costs. Cobalt prices doubled between January 2021 and 2022, while lithium prices were multiplied by 5. In parallel, the demand for metals will strongly increase over the next few years and tensions are foreseen on the marked because of too low investments in extraction capacities.

Finally, just after the COVID crisis (which is still affecting many countries), many countries will be very sensitive to possible consequences of a fast transition on their economies. Germany, for example, has repeatedly brought forward multiple times the argument of the importance of gas to its economy to oppose possible import bans.

Acting to reduce emissions is getting ever more urgent. The war in Ukraine has placed the dependence on fossil fuels back into public debates, a place it should never have left because of the pressing climate change issues. If it is too soon to draw any conclusions at this stage, decarbonizing our economies is clearly advantageous at many levels, even beyond climate change itself.

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