World Energy Outlook 2022 – UPSC Notes

International Energy Agency (IEA) releases the ‘World Energy Outlook (WEO)‘ report annually. The WEO is the most authoritative source for global energy projections and analysis. It provides indispensable insights into global energy supply and demand in different scenarios and the implications for energy security, climate targets, and economic development. This flagship publication of the IEA has appeared every year since 1998.

About the World Energy Outlook 2022

The World Energy Outlook 2022 was published on 27 October 2022 by the IEA.

With the world amid the first global energy crisis triggered by Russia’s invasion of Ukraine, the WEO 2022 provides critical analysis and insights on the implications of this profound and ongoing shock to energy systems across the globe.

Based on the latest energy data and market developments, this year’s WEO explores fundamental questions about the crisis: Will it be a setback for clean energy transitions or a catalyst for more significant action? Which energy security risks lie ahead on the path to net zero emissions? How might the government responses shape energy markets?

The 2022 World Energy Outlook explores three different scenarios, differentiated primarily by the assumptions made on government policies. The three scenarios explored in this Outlook are:

  • Stated Policies Scenario (STEPS): shows the trajectory that reflects today’s policy settings based on a detailed sector-by-sector assessment of what policies are actually in place or are under development by governments around the globe. STEPS looks not at what governments say they will achieve but at what they are actually doing to achieve the targets and objectives they have set out and assesses where this leads the energy sector.
  • Announced Pledge Scenario (APS): assumes that all long-term emissions and energy access targets, including net zero commitments, announced by the governments, will be met on time and in full, even where policies are not yet in place to deliver them.
  • Net Zero Emissions by 2050 (NZE) Scenario: maps out a way to achieve 1.5°C stabilisation in the rise in global average temperatures, alongside universal access to modern energy by 2030. While the first two scenarios are exploratory, the NZE Scenario is normative. NZE Scenario is designed to achieve the stated objective and shows a pathway to that goal.

Key Findings of the World Economic Outlook 2022

  • Today’s global energy crisis is significantly broader and more complex than those that came before. The shocks in the 1970s were about oil, and the task facing policymakers was relatively precise. By contrast, the energy crisis today has multiple dimensions: natural gas, but also coal, oil, electricity, food security, and climate.
  • Oil has been expensive before, but there is no precedent for the import bills for natural gas in 2022.
  • Russia’s invasion of Ukraine has exacerbated the global energy crisis, which was already triggered by the supply disruption caused by the COVID-19 pandemic.
  • The global energy crisis due to Russia’s invasion is having far-reaching implications for businesses, households, and entire economies, prompting short-term responses from governments and a more serious debate about the ways to reduce the risk of future disruptions and promote energy security.
  • Russia’s invasion of Ukraine has led to a period of extraordinary turbulence in energy markets, especially for natural gas. Europe is at the centre of this crisis.
  • Russia is seeking to gain political leverage by withholding gas supplies and exposing consumers to higher energy bills and supply shortages over the winter heating season.
  • As of September 2022, Russia’s gas deliveries to European Union are down by 80% compared to where they have been in recent years, which has naturally created significant pressure on European and global gas balances.
  • High energy prices are causing an enormous transfer of wealth from consumers to producers, back to the levels seen in 2014 for oil but entirely unprecedented for natural gas.
  • High fuel prices account for 90% of the rise in the average costs of electricity generation worldwide; natural gas alone accounts for over 50%.
  • The costs of renewables and carbon dioxide have played only a marginal role, underscoring that this is a crisis where the energy transitions are the solutions rather than the problem.
  • Price and economic pressure mean that the number of people without access to modern energy is increasing for the first time in a decade. Around 75 million people who recently gained access to electricity are likely to lose the ability to pay for it, and 100 million people may revert to the use of traditional biomass for cooking.
  • The crisis provides a short-term boost to the demand for coal and oil as consumers scramble for alternatives to high-priced gas. But, the lasting gains from this crisis accrue to low-emissions sources, mainly renewables, but also nuclear in some cases, alongside faster progress with efficiency and electrification, e.g. electric vehicles.
  • In the Stated Policies Scenario (STEPS), global energy demand growth of around 1% per year to 2030 is met in aggregate almost entirely by renewables. Emerging markets and developing economies, like India, see increases across a broader range of fuels and technologies, while the only sources to show growth in advanced economies to 2030 are low emissions.
  • The STEPS in the World Energy Outlook (WEO) 2022 is the first WEO scenario based on prevailing policy settings that sees a definitive peak in global demand for fossil fuels. Coal demand peaks in the next few years, natural gas demand reaches a plateau by the end of the decade, and oil demand reaches a high point in the mid-2030s before falling slightly. From 80% today – a level that has been constant for decades – the share of fossil fuels in the global energy mix drops to less than 75% by 2030 and to just above 60% by mid‑century.
  • In the Announced Pledges Scenario (APS), the drive to meet climate pledges in full sends demand for all fossil fuels into decline by 2030.
  • With the loss of its largest export market in Europe, Russia faces the prospect of a much-diminished role in international energy affairs. The year 2021 proves to be a high-water mark for Russian export flows. Its share of internationally traded gas, which stood at 30% in 2021, falls to 15% by 2030 in the STEPS and to 10% in the APS.
  • Importers in China have been actively contracting for liquefied natural gas, and there is no room in China’s projected gas balance for another large-scale pipeline from Russia.
  • Energy-related CO2 emissions rebounded to 36.6 Gt in 2021, the largest-ever annual rise in emissions. In the STEPS, they reach a plateau of around 37 Gt before dropping slowly to 32 Gt in 2050, a trajectory that would lead to a 2.5°C rise in global average temperatures by 2100. This is around 1°C lower than implied by the baseline trajectory before the Paris Agreement, indicating the progress that has been made since then. But much more needs to be done. In the APS, emissions peak in the mid‑2020s and fall to 12 Gt in 2050, resulting in a projected global median temperature rise in 2100 of 1.7°C.
  • In the Net Zero Emissions by 2050 (NZE) Scenario, CO2 emissions drop to 23 Gt in 2030 and zero in 2050, a trajectory consistent with limiting the temperature increase to less than 1.5°C in 2100.
  • Planned increases in global clean energy manufacturing capacity provide a leading indicator of the potential for rapid increases in deployment. In the case of heat pumps, the current and planned manufacturing capacity is below the deployment levels projected in the APS. But the announced global manufacturing capacity for electrolysers and solar PV modules in 2030 is sufficient not only to reach APS deployment levels but to go beyond them.
  • One point common to each scenario is the rising share of electricity in global final energy consumption. From 20% today, this increases in each scenario, reaching more than 50% by mid-century in the NZE Scenario. This is associated with a huge overall increase in global electricity demand – with the bulk of this growth coming from emerging markets and developing economies – and the need for constant vigilance from policymakers to a range of risks to electricity security, in particular the ever-increasing need for flexible operation of power systems.
  • The world has not been investing enough in energy in recent years, a fact that left the energy system much more vulnerable to the sort of shocks seen in 2022. A smooth and secure energy transition will require a significant uptick in clean energy investment flows. Getting on track for the NZE Scenario will require a tripling in spending on clean energy and infrastructure to 2030, alongside a shift towards much higher investment in emerging markets and developing economies.
  • Policy and technology changes since the Paris Agreement in 2015 have reduced the projected temperature rise, but there’s still a long way to go to cap global warming at 1.5°C.

Key Highlights about India

India will witness the largest increase in energy demand of any country. India will become the world’s most populous country by 2025, and combined with the twin forces of urbanisation and industrialisation, this underpins rapid growth in energy demand, which rises by more than 3% per year in the STEPS from 2021 to 2030.

Even though India continues to make great strides with renewables deployment and efficiency policies, the sheer scale of its development means that the combined import bill for fossil fuels doubles over the next two decades in the STEPS, with oil by far the largest component. This points to continued risks to energy security.

India is the world’s second‐largest coal consumer today and accounts for just over 10% of global coal consumption. Coal demand in India rose rapidly between 2010 and 2019, mainly as increases in electricity demand were largely met through coal‐fired power.

Coal use in India dropped by 7% in 2020 due to the pandemic but increased by 13% in 2021, therefore already surpassing 2019 levels.

Coal generation is projected to continue to expand in absolute terms in the STEPS, peaking around 2030, though its share of electricity generation falls from just below 75% to 55% over this period.

In India, coal demand peaks in the early 2030s and then declines gradually, mainly due to the rapid deployment of renewables in the power sector.

Government programmes, such as the Gati Shakti National Master Plan and the Self‐Reliant India scheme and strong economics, promote robust growth in renewables and electric mobility, notably for two/three‐wheelers.

Renewables meet more than 60% of the growth in demand for power and account for 35% of the electricity mix by 2030 (solar PV alone accounts for more than 15%). However, coal still meets a third of overall energy demand growth by 2030, and oil, mainly for transport, another quarter.

In the APS, more rapid progress in deploying low‐emissions alternatives in the power, industry and transport sectors in particular puts India on a trajectory in line with its goal of net zero emissions by 2070.

India has taken a key step towards establishing a carbon market and boosting the energy efficiency of buildings and appliances.

Source: International Energy Agency.

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