The 26th session of the Conference of the Parties (COP 26) to the UN Framework Convention on Climate Change (UNFCCC) opened last week. It has been called the ‘last, best hope’ for nations to achieve the Paris goal of limiting temperature rise to 1.5 degrees C by mid-century. So far, the high-level announcements and pledges coming from many countries are impressive. The world is beginning to look like it’s on an inevitable, if halting, journey to a low carbon economy.
The leaders’ summit has now ended and negotiators are getting down to business working out the details and rules for countries’ carbon-cutting plans. What emerges will say much about the future of low-carbon hydrogen. A good basis to judge the result already exists in a report issued as a ‘handbook’ for the conference.
A roadmap to 2050
Two recent events leading up to COP 26 show how the conversation around energy has fundamentally changed. One symbolic and one directly influencing policy, they may foretell significant progress in Glasgow.
Symbolic was last month’s announcement of the first Nobel Prize directly related to climate change. The physics prize went to three scientists whose research decades ago made it possible to closely correlate CO2 emissions with planetary warming.
Their breakthroughs allowed the development of reliable long-range climate models producing energy and climate scenarios.
This same climate modeling made possible another significant breakthrough this year when the International Energy Agency (IEA) published Net Zero by 2050: A roadmap for the global energy system. It is now a guiding document for the agency.
It’s an important institutional threshold putting very strong climate action at the center of its work. But the IEA’s scenario is not a forecast of what the agency thinks will happen; instead it’s a roadmap showing how to arrive at a desired goal.
It's not a forecast, and what governments will do is basically unknown; they could renege or fail to implement promises. There is no case assessing what the IEA views as likely to happen, or what happens if countries don’t live up to their commitments. Some see the agency’s refusal to forecast as problematic.
“The IEA seems stuck between its two missions of energy security and sustainability, as indeed is much of the Western energy policy establishment,” says Robin Mills, columnist and CEO of Dubai-based Qamar Energy.
“I sympathize with their dilemma,” he adds, “because this is a very tough message to communicate accurately to policymakers and the general public.”
The real impact of the IEA’s scenario-making is now being tested at COP 26, where the agency is playing an important advisory role. Its net-zero emissions scenario is now an integral part of its annual World Energy Outlook report (WEO-2021), released last month to serve as a ‘handbook’ for the summit.
So the Nobel laureates’ work of decades ago has come to play directly in energy policy, and with some urgency. IEA Executive Director Fatih Birol, in comments accompanying WEO-2021, said the 2020s will be a pivotal decade for climate efforts. And the new report makes clear that this is especially true for low-carbon hydrogen, which has a key role in the scenarios.
Scenarios: closing the gap
WEO-2021 was released earlier this year than in past years in anticipation of the upcoming COP26 meeting. It focuses on the gap between countries’ announced pledges and the net-zero carbon roadmap, presumably to prod them at Glasgow.
It is structured around three scenarios that progress from policies to pledges to net zero, with its net-zero emissions (NZE) scenario a central focus and aspiration, a difficult but still feasible path against which the other scenarios are compared.
The report shows subtle shifts in the agency’s perspective to back its net-zero scenario.
For the first time, it says more renewables are required not just to achieve carbon-neutrality, but in order to stabilize energy systems and smooth the volatility of oil and electricity prices. This addition reverses the usual emphasis on the volatility of renewables and appears quite pragmatic in light of the world’s current energy crunch.
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Another first is the dropping of the base case of current trends. Instead, a ‘stated policies scenario’ (STEPS) serves as a base case scenario, which for the first time shows fossil fuel demand falling slightly by 2050, with net growth in energy demand from low-carbon sources.
Thus the report shows modest but real progress already being made in the current initiatives to control carbon emissions worldwide, although these fall far short of achieving the Paris goal. Or, as the IEA report puts it, “A new energy economy is coming into view.”
In the STEPS, fossil fuel demand plateaus in the 2030s. More ambitious public policy is contained in the ‘announced pledges scenario’ (APS), which causes oil demand to peak in the 2020s. This scenario assumes enhanced Nationally Determined Contributions (NDCs) in the COP framework, to limit temperature rise to 2 degrees C by end of this century. But this falls far short of the climate security offered by the NZE.
Much of the WEO-2021 report is aimed at closing this gap, showing the shortfalls that might be made up at Glasgow, to actually achieve net-zero emissions in 2050. Currently, announced pledges fill close to 20% of the space between the base case of stated policies and the aspirational NZE.
The report looks at the gap in the power sector and in each end-use sector: industry, transport, and buildings. Hydrogen plays an important role in each.
Intervention needed now
Electricity sector decarbonization gives the biggest boost in the NZE scenario in the next ten years. Energy efficiency and avoided demand are central, too. And across all sectors, clean energy innovation must occur to achieve the Paris goal. Low carbon fuels and hydrogen electrolyzers are considered ‘key technology areas’ in the IEA’s roadmap.
For hydrogen, the WEO-2021 report emphasizes the need to test technologies and build enabling infrastructure during the 2020s, even though their significant impact on emissions will not occur until after 2030. Thus, in the APS and NZE scenarios, the actual amount of low-carbon hydrogen-based fuels in 2030 is quite small, making up less than 1.5% of total final consumption by 2030 (up from almost nothing today). But progress to 2030 will be critical for their later success.
But more policy support is needed now, the IEA asserts, with a great expansion of policies to support the development of hydrogen-based fuels. Concerted policy and regulatory interventions must begin to lay the groundwork now for hydrogen, to eventually lower production costs and expand use after 2030.
Creating markets to spur innovation
With the technology and infrastructure in place, the market for low-carbon hydrogen expands exponentially in the years after 2030, according to the IEA’s net-zero emissions roadmap. The supply of hydrogen and hydrogen-based fuels from low-carbon sources expands sixfold from today’s levels to become a remarkable 10% of total final energy consumption in 2050. Their use extends throughout the energy sector.
Getting to that result will require a massive investment in the next ten years. According to data in the IEA’s Global Hydrogen Review 2021 report, also released in October, about USD 37 billion has been committed to clean H2 by countries with hydrogen strategies. An investment of USD 300 billion has been announced by companies. However, according to the IEA, the level of public and private investment will need to reach USD 1.2 trillion by 2030 for hydrogen to achieve its contribution to net zero emissions by 2050.
From this, it appears that the big project announcements of the past two years, while important, are only part of the equation. They have directed a lot of attention toward efforts to produce low-carbon hydrogen in large quantities. What is also needed, however, are policies to increase demand and vastly expand the market for clean hydrogen.
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Therefore what COP 26 should bring forth are much broader commitments to policies designed to create demand and thereby spur major investment in innovation. Such demand creation will encompass a wide variety of policy instruments, including carbon prices, auctions, quotas, mandates, and procurement requirements. Governments will have to impose standards, incentives, and rules to create markets. For example, they might set specific dates and deadlines for low-carbon and even non-carbon steel production and other industrial products.
These kinds of measures have not been widely applied or even discussed. But their great use would be to create investor confidence, to know that markets for hydrogen-based fuels and for the innovative technologies required to produce them at competitive prices will be there.
A widespread commitment to policies to scale up hydrogen demand would be a major achievement of COP 26. These could greatly lower the cost of clean H2 technologies worldwide, laying the basis for a rapid expansion of production in the coming decades. What happens in Glasgow could make or break the pivotal decade.
By Alan Mammoser for Oilprice.com
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