Abu Dhabi, 1 November 2016

Decarbonisation pathways to 2050

CONTEXT AND SCOPE

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1. Analysis of RE costs,

cost reduction potentials and

best practice exchange

2. Best practice exchanges on

(i) enabling policy framework

(ii) integration of high shares of

variable renewables

3. Development of a renewable

energy specific risk mitigation

facility

Five Actions on a voluntary opt-in basis

4. Assessment of country

renewable energy technology

potentials and development of

roadmaps

5. Accelerate deployment of

modern bioenergy

The G20 Toolkit

September 2016

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Decarbonisation study

• New study: “Global Energy Transition: Shifting Investments for

Decarbonisation”

• Objective: identify investments in low-carbon technologies in

the areas of power generation, transport, buildings and industry

to enable energy sector decarbonisation, whilst supporting

security of energy supply, sustainable development and

poverty alleviation

• Commissioned by Germany as input to the G20 discussions

• Closely coordinated with the International Energy Agency (IEA)

• Feeding to final OECD study of decarbonisation of the global

economy

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IRENA decarbonisation study content

• Builds on IRENA’s REmap 2030 analysis, and expand to 2040/50 with

national plans & credible third-party sources

• Assess renewable energy, energy efficiency technology potential (CCS

& nuclear, if needed) by G20 country and sector

• Combine options into scenarios that meet the climate objective

• Assess the economics of scenarios: investments, stranded assets

• Macro-economic assessment: welfare, GDP, trade, jobs - E3ME model

• REmap country expert group for review

• With support and consultation of academia:

Institute for Sustainable Futures (University of Technology Sydney),

Smith School of Enterprise and Environment (Oxford University)

Numerous globally acknowledged climate experts (IPCC; IDDRI/DDPP;

Global Carbon Project; PBL; Climate Analytics; IIASA)

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Initial observations from IRENA’s

2050 decarbonisation analysis (DRAFT)

• Global temperatures have risen by 0.9 oC and continue to rise by 0.03 oC/yr

• By 2045, 2 oC will be reached – need to stop concentration rise by 2050

• Large uncertainty remains what this means for carbon budget

• IRENA study energy emission budget: 640 Gt (2015-2050)

• Very little room to delay, and delayed action means failure

• Renewables and efficiency can account for more than 85% of energy

emission mitigation

• RE share in TPES needs to reach >70% by 2050. Uncertainties remain:

Development of country energy use patterns

Costs, maturity and availability of low-carbon technologies

• Efficiency, electrification and bioenergy as major end-use sector solutions

• Average annual investments needs to 2050 USD 840 bln/yr, efficiency

uncertain

• First estimates of stranded assets show significant impact of delayed policy

action – buildings are key, especially in cold climates

• Air pollution, climate and GDP benefits outweigh the costs

DETAILED DRAFT

FINDINGS

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Global temperature change – 0.9 oC

Source: NASA (2016)

~0.03 oC/year fairly linear increase over the past 25 – 30 years

At this rate, by 2050 2 oC will be reached

+0.9oC

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IRENA’s carbon emission budget

(DRAFT)

0

5

10

15

20

25

30

35

2015 2025 2035 2045 2055 2065

[Gt

CO

2/yr

]Energy emissions pathways for 2 degrees/66%

Total CO2 emission budget for 2015-2050: 825 Gt CO2

Max level emissions for decarbonisation: 2030 20 Gt & 2050 5 Gt

On average 25 Gt per year in 2015-2050, and annual decline of 0.7 Gt CO2

Energy-related:

640 Gt CO2

Non-energy-related

(industry, waste, fugitive):

185 Gt CO2

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Role of renewable energy and

energy efficiency

Doubling the share of renewables by 2030 would put the world on a pathway

to limiting global warming to 1.5-2.0 degrees

Renewable energy reduction potential on par with efficiency potential

Source: IRENA (2016)

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Country Reference Cases (DRAFT)

0

5

10

15

20

25

30

35

40

45

50

2010 2011 2012 2013 2014 2030 2050

China

India

USA

Indonesia

Russian Fed.

Other EU-28

Japan

Brazil

Mexico

Canada

Australia

South Africa

Rep. of Korea

Saudi Arabia

Germany

Argentina

Turkey

United Kingdom

Italy

France

Non-G20

Energy-related CO2 emissions (Gt/yr)

640 Gt CO2

+940 Gt CO2

<2C pathway

Reference Case growth in total energy-related CO2 emissions of 40% in

2015-2050

Emissions must decline by 85% to remain in the proposed carbon budget

65% of the

global CO2

emissions

20%

15%

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Sector Reference Cases (DRAFT)

0

10

20

30

40

50

2014 2030 2050

Power and district heat Industry

Transport Buildings

Other Non-G20

Energy-related CO2 emissions (Gt/yr)

Largest effort required in

power, RE progress well

Transport & industry are

largest emitting end-users,

but large tech challenges

Small emitter, but large

investment implicationsBuildings

Transport

Industry

Power

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Doubling 2030 REmap 2050 - biomass REmap 2050 -electrification/biomass

REmap 2050 -electrification

Ren

ewab

le e

ne

rgy

shar

e

Coal Oil Gas Nuclear Hydro Biofuels Other renewable energy

20-22 Gt/yr

13 Gt/yr

8 Gt/yr

3 Gt/yr

Total primary energy supply (PJ/year)

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Developments in energy sector to

2050 (DRAFT)

70-90% RE

Realising RE share of 70-90% in TPES by 2050, from 30% in 2030

GHG policy implies 1.5-2 percent point per year growth in RE share

About 10x growth from current progress

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Developments in the power sector

(DRAFT)

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

Doubling 2030 REmap 2050 - biomass REmap 2050 -electrification/biomass

REmap 2050 -electrification

Coal Oil Natural gas

Nuclear Hydro Solid biofuels

Biogas Solar PV Wind

CSP Geothermal Ocean / Tide / Wave

Installed power generation capacity (GW)

Electrification will be key. With limited biomass available it

implies even more ambitious electricity end-use coupled with

RE power

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Renewable energy by sector &

application (DRAFT)

0% 20% 40% 60% 80% 100%

Power generation

District heat generation

Low temp. (food, textile, others)

Medium temp. (chemicals, pulp &…

High temp. (cement, iron steel)

Space heating

Water heating

Cooking

Road (passenger cars)

Road (freight)

Railways (for diesel)

Aviation, Shipping

Road (others)

Ind

ust

ry (

hea

t)B

uild

ings

Tran

spo

rt

REmap 2050 - electrification REmap 2050 - Mix REmap 2030 2013/14

RE share

Largest challenges in industry and transport sectors

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Renewable energy by sector &

application (DRAFT)

Focus so far on 1/3 of the global energy use of sectors RE

knowledge limited

Industry, low and medium

temperature15%

Buildings, heating20%

Buildings, electricity

5%Transport,

passenger road18%

Transport, rail1%

Transport, other6.7%

Other sectors3%

Non-energy use8%

Petroleum refineries

2%

Industry, high-temperature

15%

Buildings, cooling3%

Transport, aviation

1.1%

Transport, navigation

0.5%

Transport, public0%

Transport, freight1%

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Building stock developments

(DRAFT)

• About 80% growth in building stock between now and 2050

About 85% of the global growth will be in China and India

• To achieve 2050 targets, >90% of existing building stock needs to be retrofitted and

2/3 of new buildings to 2050 need to be built very efficient (-80% energy use)

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Global building stock evolution

Existing buildings - no retrofit Existing buildings - mild retrofit (-20%)

Existing buildings - strong retrofit (-30%) New built - efficient (-50%)

New built - very efficient (-80%)

floor space, billion m2

MACRO-ECONOMIC

IMPACTS

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Renewable energy boost global GDP

Source: IRENA (2016)

• Doubling the share of renewables by 2030 would increase global

GDP by up to 1.1% or USD 1.3 trillion

• The increased investment in renewable energy deployment

triggers ripple effects throughout the economy

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Renewable energy will create more jobs

Source: IRENA (2016)

24.4 million

13.5

million

From 9 million today, to 24 million jobs

in renewable energy in 2030 (13

million in the Reference Case)

Overall energy sector employment

effects are slightly positive

As could be expected, all large

employers are G20 countries

ECONOMIC COST

INDICATORS &

STRANDED ASSETS

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A number of economic cost indicators

will be assessed

• Annualized system cost increase in addition to the

Reference Case

Annualized incremental RE+EE cost – FF cost savings +

stranded assets

• Investment support for renewable energy – net cost

of all options with incremental cost

• Investment volume of RE and EE options (absolute,

incremental)

• Stranded assets

• Net investment impact (Incremental RE+EE –

reduced fossil fuel investments)

• Welfare effect – cost minus savings

• Possible definitions in the energy context

Loss in valuation of fossil fuel reserves (e.g. Exxon this week)

Remaining value of assets (e.g. power plants, industrial equipment) that is

depreciated

Lost value of supporting physical infrastructure (e.g. gas stations), human

resources (e.g. oil sector expertise), etc.?

Definitions for stranded assets vary significantly, risking its under-estimation

• IRENA’s proposed approach to stranded assets

Stranded asset definition used in this case:

Remaining book value of upstream, power generation and end-use

sector assets that would be substituted - before the end of their

economic lifetime and without recuperation of any remaining value - to

achieve 2050 decarbonisation targets 23

What are stranded assets?

• Preliminary findings:

Upstream: - up to USD 5.1 trillion, 85% oil

- based on current market valuation of upstream producers,

adjusted by a reduced outlook for production levels

Power: - up to USD 2.4 trillion, 60-70% coal

Buildings: - up to USD 1.3 trillion in Germany; for other countries work in

progress, but greatly exceeds stranded assets in other sectors

• Stranded assets between two pathways compared:

REmap: accelerated renewables deployment as per REmap up to 2030 and 2050

Delayed policy action: business as usual up to 2030, accelerated path afterwards to

reach same outcomes by 2050

• Industry, other infrastructure TBD but probably of secondary importance

• Stranded assets depend critically on CO2 emission reduction objective

• New infrastructure over the next 2 decades that is incompatible with deep

CO2 emission reduction will result in additional stranded assets 24

Estimating stranded assets (DRAFT)

-

500

1,000

1,500

2,000

2,500

201

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Stranded power generation assetsREmap 2030 - REmap 2050

Oil Gas CoalCumulative

USD bn

-

500

1,000

1,500

2,000

2,500

201

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Stranded power generation assets Reference Case 2030 - REmap 2050

Oil Gas CoalCumulative

USD bn

• Stranded assets increase significantly if policy action is delayed:

USD 1 650 billion with REmap, ~60% of which coal

USD 2 390 billion (+45%) with delayed policy action, ~70% of which coal

• Assumed full decarbonisation of power sector by 2050 (0 GW coal, gas, oil)

With gas still online in 2050, stranded assets reduce by c. USD 600 billion

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Stranded assets –

preliminary findings (power) (DRAFT)

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• With delayed policy action, 2/3 of stranded assets in US, EU, China, India

China and India account for more than half of all coal stranded assets

US, EU, Russia account for nearly half of all gas stranded assets

China, 458

Rest of World, 267

US, 220

India, 183

EU, 169

Russia, 87

Indonesia, 70

Australia, 36

KSA, 34

Japan, 31

RoK, 27

Turkey, 18

Mexico, 17 Brazil, 13

Canada, 11

Argentina, 8

RSA, 0

Stranded power generation assets -REmap 2030-2050

Cumulative

USD bn in

2050

China, 588

US, 583

Rest of World, 357

India, 246

EU, 188

Russia, 89

Indonesia, 87

Australia, 49

Japan, 46 KSA,

34

Mexico, 31

RoK, 30

Turkey, 19

Brazil, 18

Canada, 14

Argentina, 9

RSA, 0

Stranded power generation assets -Reference Case 2030 - REmap 2050

Cumulative

USD bn in

2050

Stranded assets –

preliminary findings (power) (DRAFT)

Building stock evolution (Germany)

(DRAFT)

• With REmap:

Reduction in direct use of fossil fuels of 58% by 2030: 90% by 2050

100% of new buildings from 2020 without direct fossil fuel use

Both retrofits and new buildings not consuming fossil fuels include EE/RE measures

(insulation, efficient doors/windows, heat pumps)

- 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0

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Germany building stock evolution REmap 2030 - REmap 2050

New buildings - not consuming fossil fuels New buildings - consuming fossil fuels

Existing stock - not consuming fossil fuels Existing stock - consuming fossil fuels

floor space, billion m2

• Estimating buildings stranded assets:

Construction value lost when undertaking a deep retrofit:

• Estimated as difference between:

1. % of construction value for retrofit to achieve zero fossil fuel use, and

Estimated at ~20% of construction value for residential buildings

2. premium to construction value to achieve zero fossil fuel use in new building

Estimated at ~10% of construction value for residential buildings

• Intuition: e.g. difference between cost of installing double-glazed windows vs. first

installing single-glazed windows, and then replacing by double-glazed windows:

– Stranded asset: value of single-glazed windows

• Estimated for Germany at:

REmap: USD 540 billion over 2016-2050 (undiscounted)

Delayed policy action: USD 560 billion over 2016-2050 (undiscounted)

• Higher than REmap because more buildings are constructed (until 2030) that

consume fossil fuels, which later have to be retrofitted

Stranded assets –

preliminary findings (buildings) (DRAFT)

• For a 100% reduction of direct fossil fuel use in buildings, the construction value

of the remaining building stock is unsuitable for retrofit (~10% of building stock

today) would need to be added to this:

– Estimated for Germany at ~USD 750 billion (present value)

• Up to ~USD 1.3 trillion in total stranded assets in Germany for full

decarbonisation of building sector by 2050;

– Germany only 3% of global building stock today, so worldwide can reach

up to USD 100 trillion

• Analysis for other countries in progress;

– Rest of EU: similar dynamics to Germany

– US: faster building stock turnover, more opportunities to avoid stranded

assets

– Asia, RoW: most parts direct use of fossil fuels in buildings is lower, higher

share of electricity due to lower demand for space heating and fewer

Stranded assets –

preliminary findings (buildings) (DRAFT)

THANK YOU!WWW.IRENA.ORG/REMAP

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