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Salman Ghouri

Salman Ghouri

Dr. Salman Ghouri is an oil and gas industry advisor with expertise in long-term forecasting, macroeconomic analysis and market assessments.

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Achieving Paris Climate Goals With An Altered Energy Mix By 2040

  • Energy is one of the driving forces behind global economic growth.
  • It is important to recognize that reducing energy consumption significantly would jeopardize global economic growth.
  • The world is making significant strides to decarbonize power generation and transportation before 2040.
Industry

Energy stands as the cornerstone of global economic prosperity. Out of total primary energy consumption (TPEC), fossil fuels have long played a dominant role in the development of our societies, as indicated in Figure-1 for the year 2022. In that year, fossil fuels accounted for a staggering 82% of total primary energy consumption. Breaking this down, we find that oil led the way at 32%, closely followed by coal at 27%, natural gas at 23%, and hydro and renewable sources each at 7%, with nuclear bringing up the rear at 4%. While fossil fuels have indeed propelled our economic progress, they also have negative implications for the environment and human health. Going back to the 18th and 19th centuries, coal took center stage in driving global economic growth, and although its role has diminished somewhat, it still looms large behind oil. 

Figure-2 illustrates the historical trends of total primary energy consumption (TPEC) and carbon dioxide (CO2) emissions since 1970. There is, indeed, a positive correlation between the usage of TPEC and CO2 emission; the more energy we consume, the more we will pollute our environment. However, over the years, this relationship has weakened due to improvements in energy efficiency due to technological advancements. Nevertheless, we have reached a juncture where continued reliance on fossil fuels and a reluctance to embrace renewables will leave a polluted legacy for future generations. Such a legacy, rife with detrimental consequences for the economy and environment, is not one we wish to leave behind.

It is important to recognize that reducing energy consumption significantly would jeopardize global economic growth. Thus, our challenge is to curtail the wasteful use of fossil fuels and promote clean energy sources wherever possible.

Identification of the problem:

First, to address this issue effectively, we must first pinpoint the problem. It is no secret that the major culprits are fossil fuels, particularly coal and oil. Natural gas, relatively cleaner, remains in the mix. While we cannot abruptly halt fossil fuel usage, we must explore efficient alternatives and incorporate renewable energy into our TPEC mix. Achieving this transformation is a complex task, requiring the coordinated efforts of governments, researchers, investors, energy companies, and other stakeholders. Related: IEA: Net Zero Still Achievable If The World Slashes Fossil Fuel Demand

Coal is predominantly consumed in power generation, with some countries relying on it for over 60% of their power needs due to domestic coal reserves and limited alternative energy sources. Meanwhile, oil dominates the transport sector, accounting for over 60% of consumption. Replacing these with cleaner energy sources, where possible, holds the key to resolving our CO2 emissions problem.

Figure-1: Primary Energy Consumption by Fuels – 2022.

The history of oil is marked by its discovery in the U.S. around 1859, but its widespread production and consumption only began at the turn of the century. The invention of the internal combustion engine by Henry Ford in the early 19th century ignited the automotive industry, sparking relentless demand for oil. Ironically, today’s auto industry is challenging its once-loyal fuel source. Electric vehicles (EVs) are poised for exponential growth, driven by automakers’ realization that their survival depends on them staying ahead of the EV curve. The pace of EV adoption is surpassing that of Internal Combustion Vehicles (ICVs), bolstered by shifting consumer preferences, environmental concerns, and the proliferation of charging infrastructure.

An article titled “The Tipping Point In Global Oil Demand” predicts that by 2040, global oil demand will peak somewhere between 2025-2027. Yet another article earlier published at Oilprice.com “EV Adoption Could Spell Trouble For Oil Exporters” predicts that under the standard model, annual EV sales are projected to grow by an average of 20%, from 26.2 million in 2022 to 582 million in 2040. This projection accounts for current EV data and industry strategies, particularly in high-growth markets such as China and India. Such growth is expected to result in fuel savings of 21.42 million barrels daily (mmbd) by 2040 under the reference case scenario. In a high-growth scenario, the total number of EVs is expected to reach 937 million, yielding fuel savings of 34.46 mmbd by 2040. While oil is projected to remain the dominant primary energy source in 2040, these gains in fuel efficiency translate into significant reductions in CO2 emissions, aligning with the goals set by the Paris Agreement by 2050.

Figure-2: Historical trend of TPEC and CO2 Emission

Another important source of TPEC is coal, accounting for 27% in 2022. Figure-3 highlights the historical trends of regional coal consumption, with Asia taking the lead at 80.8% of global coal consumption by the end of 2022. This statistic speaks volumes about the geographical concentration of pollution. Figure-4 underscores this fact, showing China alone is responsible for 67.74% of total coal consumption in Asia and accounted for 54.8% of global coal consumption, with India being the second largest consumer, trailing at 12.4%. In both countries, most of the coal is used for power generation.

Figure-3: Regional coal consumption - Exajoules

Figure-4: Historical trend of coal consumption by world top two countries (Exajoules)

Figure-5 provides a snapshot of electricity generation by source, revealing that coal still commands 35% of the market in 2022. Despite a significant decline in coal consumption in regions like Europe and North America, China’s continued reliance on coal for power generation is a persistent source of CO2 emissions. In contrast, the United States has successfully transformed its economy from coal-based power generation towards lower emissions energies. In 2000, coal was the major source of power generation, accounting for 52%, natural gas 16%, nuclear was almost 20% and renewables were 9%, and the rest by others. In 2022, the share of coal tumbled down to 19.5%, while natural gas turns out to be the largest contributor in power generation, stood at 39.8%. Consequently, natural gas has been the major driver for lowering greenhouse gas emissions from electricity generation because it’s been largely replacing coal-fired power plants. Interestingly, for the first time, electricity generated from renewables surpassed coal in 2022 (EIA), 21.5% (hydro 6.2% and renewables – 15.3%) the remaining by other sources.

Figure-5: Electricity generation by source - 2022

Renewable Growth – Good News

Renewable energy sources, particularly wind and solar, are experiencing exponential growth. This positive trend holds the promise of helping the world meet its climate change goals by 2050. However, this growth is contingent on sustained investments and government policies that favor renewables. China and India, two of the world’s largest CO2 emitters, are taking substantial and connected measures to tackle the issue. Both countries are investing in renewable energy sources, transitioning from ICVs to EVs, and expanding wind and solar capacity. They’re also exploring hydro and nuclear power to diversify their energy mix.  

Our aspiration is for a shift in the TPEC mix towards renewables and clean energy sources. If the world can accomplish this transformation by 2040, as illustrated in Figure-6, the vision outlined back in 2017 by the author remains valid. The proliferation of EVs will reduce oil’s share from 32% in 2022 to 23% in 2040, while coal’s share will drop from 27% to 18% in the same period. In contrast, natural gas and renewables will see their shares grow from 23% and 7% respectively, to 28% and 18% by 2040. 

Figure-6: Global Primary Energy Consumption – Mix (%)

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Figures 7 to 11 provide hope that, yes, we have identified the inherent problems and are well on our way to resolving these issues of energy and pollution that have a positive correlation. Though the journey is bumpy, the end results will be thrilling. Global renewables, growth in wind power and solar energy are all growing at healthy rates. China, the largest consumer of coal and a significant contributor to pollution, is not just recognized for this issue but is actively taking substantial measures to combat CO2 pollution by investing in wind and solar energy.

Significantly, China holds the top position globally as the largest manufacturer of both wind and solar technologies. Its investments in hydroelectric and nuclear energy, coupled with its initiatives in electric vehicles (EVs), have contributed to a decrease in its reliance on oil imports and the associated CO2-related challenges.

If the world can transform its energy mix as highlighted in Figure-6 it would be better off without compromising its economic prosperity. Moreover, we can pass down a healthy and environmentally acceptable society to our future generations. Looking at United States, a successful journey from coal-based electricity generation towards natural gas and renewable energy, we are optimistic that with concerted efforts the world will be able to meet the Paris climate targets by 2050. 

By Salman Ghouri and Farris Ahmad for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on September 26 2023 said:
    The realities in the marketplace tell us a different story.

    1- Oil and natural gas will continue to drive the global economy throughout the 21st century and probably far beyond. The reason is that there are no alternatives as viable and versatile as oil and gas now nor probably in the next hundred years.

    2- Coal is the cheapest generator of electricity. Moreover, it is an extremely important energy source. Countries with large reserves of coal are disinclined to leave it underground. A case in point is China which is the world’s largest investor in renewables but it is still building new coal-powered electricity-generating plants.

    3- Renewables on their own are neither capable of satisfying global electricity needs nor are they able of running even a small economy because of their intermittent nature. Technology is yet to allow us to store solar power in summer for use in winter. Renewables can’t succeed without huge contributions of natural gas, coal and nuclear energy.

    4- This means that the notions of global energy transition and net-zero emissions are myths. They are both unachievable by 2050 or 2100 or ever.

    5- The notion of peak oil demand being reached by 2030 or 2050 or even 2075 is an illusion. Global oil demand will continue to grow well into the future albeit at a decelerating rate because of mandatory governmental legislations and to some extent the impact of EVs. How else then will a world rising population and a growing global economy be fed and supported respectively. The Gulf region, Venezuela and Russia’s Arctic have enough reserves to supply the globe with its energy needs for more than 100 years.

    6- EVs will never prevail over internal combustion engines (ICEs). They will certainly get a share of the global transport market but technologically-advanced and environmentally-friendly ICEs will continue to reign supreme. Where would the electricity needed to charge the supposedly millions of EVs be generated: by hydrocarbons, renewables or nuclear or a combination of all?

    Based on the above realities, a de-carbonization of power generation and transportation with altered energy mix by 2040 or 2100 or ever is a myth.

    A more pragmatic approach is to continue to invest heavily in renewables and continue to invest in oil and gas as long as there is demand for them while doing our best to cut emissions. The bigger the renewables' share in electricity generation, the less natural gas and coal and even nuclear energy the world will use.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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