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Thought piece by Richard Howard, Global Research Director

Through the annual United Nations Climate Change Conferences (known as COPs), global leaders have aligned around the goal to limit global warming to less than 2°C above pre-industrial levels and pursue efforts to limit warming to 1.5°C. 

A new report released by Aurora considers a scenario which hits the 2°C target. This has been developed to better understand the level of ambition required, the challenges to delivery, and implications for policymakers and industry.

This article summarises the context for the report as well as key insights.

Context: Despite 30 years of climate pledges, emissions have increased substantially, and the gap to the 1.5°C target has grown ever wider.

Since the United Nations Framework Convention on Climate Change (UNFCCC) was established at the 1992 Rio Earth Summit, there has been a series of international agreements to ratchet up efforts to limit global warming. This culminated in the 2015 Paris Agreement to limit global warming to 2°C above pre-industrial levels and pursue efforts to limit warming to 1.5°C 

The reality is that the last thirty years have been a golden era for fossil fuels, with annual CO2 emissions increasing by more than 60% from 1990 to 2022. The COVID-19 lockdowns led to a temporary cut in emissions of ~5% in 2020, but this has since rebounded as economic activity has resumed. Much of this growth has come from non-OECD countries, whilst emissions from OECD countries in 2022 were slightly below 1990 levels, having been in decline since around the time of the 2008/09 financial crisis. 

Globally we are far from being on track for 1.5°C. Aurora’s Central scenario, based on current and stated policies, shows a modest decline in emissions over the period to 2060; we would need to cut emissions by 85% by 2040 to be on track for the 1.5°C target.

Against this backdrop, Aurora has developed a global scenario which hits the 2°C emissions trajectory. This combines top-down modelling of the global economy and energy system with bottom-up modelling of individual power and gas markets. Within this modelling, certain input assumptions are fixed (such as existing and known energy infrastructure) whilst the model itself determines the most cost-effective route to hitting the required emissions pathway, for example through fuel substitution.  

Compared to Aurora’s Central scenario (which is consistent with 2.3-2.5°C of warming by 2100) the key assumptions in the Global Two Degrees scenario are: 

  • Coordinated and immediate action by leading global economies to drive the energy transition. The G7 and all EU countries reach Net Zero emissions economy-wide by 2050, whilst China and Brazil reach this milestone as targeted by 2060. Emerging and developing economies also decarbonise but at a slower pace. 
  • Financing and developing fossil fuel projects becomes more challenging than in the Central scenario, particularly in advanced economies targeting Net Zero. 
  • We assume global GDP growth to be equal to that of the Central scenario.

This analysis yields many insights on the challenges ahead and impacts of pursuing this pathway.

1. The carbon intensity of the world economy must drop by over 80% by 2060, whilst per capita emissions must fall to the level seen in Africa today.

Limiting global warming to 2°C or less requires that we reduce global CO2 emissions by two thirds by 2060 compared to current levels (or 3% per year, every year). As the global economy and population are still growing significantly, the challenge becomes ever harder. We will need to reduce the annual carbon emissions per capita from over 4 tonnes CO2 per person today to just over 1 tonne per person in 2060. This is slightly higher than the current emissions per capita in non-OPEC Africa. The richest nations will need to cut per capita emissions the most, whilst still maintaining living standards, by transforming the way they produce and consume energy. For developing nations, the challenge is to improve living standards and access to energy whilst avoiding a surge in emissions. Climate finance and technology transfer will be crucial. 

Likewise, the carbon intensity of our growing world economy will need to drop by 84% between now and 2060, with more carbon-intense economies such as China and India seeing the largest absolute decreases, and the most advanced economies such as the US and Europe running Net Zero economies by 2050.

2. Fossil fuel demand halves in the Global Two Degrees scenario, although gas demand remains robust.

In Aurora’s Global Two Degrees scenario, primary demand for fossil fuels halves between now and 2060. Coal and oil bear the brunt of this demand destruction, falling by 83% and 47% respectively between now and 2060. By contrast, gas plays an important role as a bridge fuel and substitute for coal, with demand falling only by 11% over the same period. Indeed, gas demand sees a peak around 2040 (unlike in recent IEA scenarios where gas demand peaks then declines before 2030, even in a scenario similar to Aurora Central, based on state policies).  

Consumption of all fossil fuels diminishes rapidly in the advanced economies targeting early delivery of Net Zero, such as Europe and the US. By contrast, gas and refined oil consumption increases in OPEC countries, Africa, and India. Coal consumption declines globally, especially by the largest consumer China, whilst a slower coal phaseout in India means that it becomes the largest consumer of coal by the 2050s.

3. Renewables become the new oil as the Two Degrees pathway sees mass electrification and switch towards lowcarbon power.

Whilst fossil fuels are in demise in the Global Two Degrees scenario, low-carbon power sources become the bedrock of the global energy sector. Total global power consumption more than doubles from 27,000 TWh in 2020 to 60,000 TWh in 2060. At the same time, the proportion of power coming from low-carbon sources increases from 38% in 2020, to 86% in 2060. This requires a five-fold increase in low-carbon power generation from 2020 to 2060.  

To give a sense of the ramp up required—globally we added 3,000 TWh of low-carbon generation in the 2010s. We would need to see an increase of 11,000 TWh during the 2020s to stay on track for 2°C. The increase in the 2020s equates to some 7,800 GW of solar capacity OR 4,000 GW of wind capacity – most likely we will have a mix of the two, plus hydro, biomass, carbon capture and storage (CCS), nuclear, and so on. To put this in context, global installations of renewables totalled around 300 GW in 2022 (190 GW of which was solar), suggesting we would need to double the rate of installations again to reduce emissions at the required speed.

4. The $40 trillion dollar question: how much value is at risk to the fossil fuel industry if we go down a Two Degrees pathway?

Where Aurora’s scenario analysis goes beyond many others is that we not only look at volumes and emissions but also prices and revenues. The analysis shows that the Global Two Degrees scenario sees cumulative revenues some $40 trillion lower over the period 2030-60 than in our Central scenario. In absolute terms the gap is biggest in the gas industry, followed by oil and coal; although in proportional terms the drop in revenues is most severe in coal due to a significant cut in both the realised prices and volumes supplied.  

The Global Two Degrees scenario sees lower gas prices than in our Central scenario. European gas prices are in long-term decline as demand diminishes. But US prices are buoyed by LNG export demand, and Asian prices remain robust due to ongoing consumption. Oil prices drop from current levels and plateau through the 2030s as electric vehicle penetration cuts into oil demand, before declining in the long term.

5. No new exploration for fossil fuels is needed in the Global Two Degrees scenario, unless for security of supply reasons.

The declining use of fossil fuels in the Global Two Degrees scenario raises the question: have we already found all the fossil fuels we need? The answer is essentially: Yes. 

Proven oil and gas reserves have increased significantly over the last few decades, despite rising consumption. The cumulative consumption levels to 2060 in the Global Two Degrees scenario are substantially below the proven reserves as they stand today. This is most obvious for oil, where proven reserves exceed cumulative consumption to 2060 by nearly 40%.  

However, non-OECD countries, such as Russia and Saudi Arabia, control most of the world’s fossil fuel reserves, which may pose a geopolitical risk. Therefore, new exploration may occur in areas closer to demand hubs in an effort to ensure a given region’s security of supply.

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