The new IEA net-zero pathway presents a world of opportunity for green investors. GETTY
Last month, the International Energy Agency (IEA) released one of the most consequential reports in its history. The influential organization developed a comprehensive pathway to net-zero carbon dioxide (CO2) emissions by 2050. This net-zero target is considered essential for limiting warming to 1.5 degrees Celsius above pre-industrial levels, the scientifically supported climate goal. However, the world emitted over 30 billion tons of CO2 last year, so getting to net-zero demands fundamental economic changes.
The IEA stated that there is “no need for investment in new fossil fuel supply,” making clear that additional fossil fuel expansion is incompatible with global climate goals. While justifiable attention has been to the scaling-down of emitting activities, the IEA offers even more detail on which green activities require massive scaling-up. The coming economic transformation will be what UN envoy Mark Carney called “the greatest commercial opportunity of our age.” By exploring the IEA’s net-zero world, those opportunities will come into focus.
Renewable Power Installation
Wind and Solar PV power generation need to be over 70% of total electricity generation by 2050 in the IEA’s net-zero scenario. GETTY
A low-carbon future begins with the power generation sector. In the IEA’s scenario, by 2050, renewables will account for nearly 90% of global electricity generation, with solar photovoltaics (PVs) and wind contributing almost 70%. A transition from the fossil fueled world of today demands tremendous investment in new capacity, grid modernization, and power storage. The IEA estimates that annual clean energy investment needs to more than triple by 2030 to over $4 trillion.
Renewable capacity has been rising, with promising amounts of solar PV and wind power installed each year. However, the rate of installation needs to triple by 2030 and increase nearly 900% by 2050 to meet future demand. That means an average of 600 gigawatts of solar PV and 340 gigawatts of wind capacity installed each year from 2030 to 2050.
Connecting these new power sources with businesses and consumers will require significant upgrades to existing energy infrastructure. Smarter and more responsive grid networks are crucial for ensuring clean power is sufficiently reliable and flexible to meet future demands. Of the over $4 trillion annual investment required, nearly 25% must go to energy infrastructure.
A critical component of that infrastructure will be power storage. Since the sun does not always shine and the wind does not always blow, integrating large amounts of renewable power into the grid requires effective storage methods. Costs for batteries have fallen rapidly and deployment has risen, but battery deployment is only 3 gigawatts annually. The IEA suggests that number needs to grow 40-fold by 2030 and 80-fold by 2050 to meet the needs of a renewable-driven power system.
Energy Efficiency and Electricity
The IEA’s net-zero scenario envisions the world thriving in 2050, with the global economy doubling in size and nearly 2 billion more people. Surprisingly, this richer and more populous world will demand 8% less energy than today. This represents a strong decoupling of economic output and energy demand. Such progress can only happen with massive investments in energy and resource efficiency.
One sector where increased efficiency is critical is real estate. Building construction and operation uses nearly 40% of global energy and produces an equal share of CO2 emissions. Ambitious retrofit programs can significantly improve energy efficiency. However, the IEA believes the pace of retrofitting needs to triple from its current rate. Likewise, new construction must increasingly focus on net-zero buildings. Net-zero buildings currently comprise less than 1% of global building stock, but the IEA estimates that share needs to rise to 85% by 2050. Across all real asset classes and regions, capital expenditure will be in the trillions.
Central to reducing energy use and emissions is electrification. In a sustainable future, electricity will power activities from industrial manufacturing to personal transportation. Within each economic sector, electrification presents unique opportunities for investors. Returning to real estate, electric heat pumps can boost energy efficiency and reduce the need for fossil fuels. Presently, there are 180 million heat pumps installed, but the IEA suggests 10-fold growth in their installations by 2050. Emissions intensive industrial processes such as steel production also must be electrified.
Transportation may be the most visible sector undergoing an electrification revolution. Major automakers have announced new electric vehicle lineups and governments have released plans to phase out internal combustion vehicles. Despite this progress, much work remains to be done. Right now, fewer than 1% of the 1.4 billion cars on the road are electric. However, that number needs to rise to 20% by 2030 and to almost 90% by 2050. Larger vehicles such as trucks and busses also need to electrify. Municipalities must invest heavily in electrified mass-transit systems that include electric busses and light rail. Like renewables expansion, electrifying transportation suggests huge growth for batteries. Total battery demand for electric vehicles is expected to rise 90-times in the next three decades, with a nearly 40-fold increase by 2030.
A World of Possibilities
Decarbonization demands transformation across the global economy. The IEA’s net-zero pathway relies heavily on renewables and gains from energy efficiency and electrification, but also foresees the deployment of emerging technologies. In the net-zero scenario, by 2050, “the vast majority of cars on the roads will be running on electricity or fuel cells, planes will be relying largely on advanced biofuels and synthetic fuels, and hundreds of industrial plants will be using carbon capture or hydrogen around the world.” This vision suggests major growth in new fuels and negative emissions technologies. Hydrogen, synthetic fuels, and biofuels have significant potential in shipping and aviation where electrification may prove difficult. Likewise, carbon capture, utilization, and sequestration (CCUS) can play a role in counteracting emissions from hard to decarbonize industries. Investments in these early-stage technologies are needed to drive down their costs and allow them to scale.
The challenge of climate change looms. Fortunately, the IEA shows, investments in decarbonization offer positive social, environmental, and financial returns. By seizing the opportunities that come from creating a new sustainable economy, we can do well while doing good.
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