Renewables and Electrification Projected to be the Pillars of DecarbonizationKey Findings from the Latest IEA's World Energy Outlook

in Japanese

On October 16, 2024, the International Energy Agency (IEA) released its latest annual World Energy Outlook (WEO)¹. This flagship publication is the most authoritative global source of energy analysis and projections. This column presents three key findings from this report. First, renewable energy (RE) will provide more than 70% of global electricity generation by 2050, with the other decarbonized technologies (i.e., nuclear, hydrogen & ammonia, and fossil fuels with carbon capture, utilization and storage (CCUS)) all being far behind. Second, electrification is the most cost-effective solution for decarbonization, including the decarbonization of the industry and transport sectors. And third, Japan’s Middle East oil imports dependency and insufficient efforts to incentivize clean energy technologies domestic manufacturing make the country vulnerable from an energy security perspective.

RE Will Supply 73-88% of the World’s Electricity by 2050

In the framework of the WEO 2024, the IEA develops three scenarios, all of which look out to 2050:

• The Stated Policies Scenario (STEPS) provides a sense of the prevailing direction of travel for the energy system, based on a detailed assessment of current policy settings.
• The Announced Pledges Scenario (APS) outlines a trajectory for the energy sector if all national energy and climate pledges, including long-term net zero emissions goals, are met on time and in full.
• The Net Zero Emissions Scenario (NZE) portrays a pathway in which the energy sector achieves net zero carbon dioxide emissions globally by 2050, in line with limiting the long-term global average temperature to 1.5 degrees Celsius, along with achieving universal energy access by 2030 and air quality objectives.

In each scenario by 2050, RE (i.e., solar photovoltaic (PV), wind, hydro, bioenergy, concentrating solar power, geothermal, and marine) always accounts for most of global electricity generation: 73-88%, up from 30% in 2023 (Chart 1). Among RE technologies, cheap solar PV and on- & off-shore wind will experience the largest growth.

By mid-century, the contributions of other decarbonized technologies: nuclear, hydrogen & ammonia, and fossil fuels (i.e., coal & natural gas) with CCUS, will be minor.

The share of nuclear will remain stable a little below 10%. Those of ammonia & hydrogen and fossil fuels with CCUS will reach 1% at most.

Chart 1: World – Electricity Generation Mix 2023-2050

These projections reflect well the empirically demonstrated cost competitiveness and technological maturity of the different decarbonized electricity generating alternatives.

Regarding costs more specifically, in the most conservative scenario “STEPS”, the value-adjusted levelized cost of electricity (VALCOE an indicator including generation and integration costs) of solar PV is projected to be in the range of $40-70/MWh in 2050. In comparison, the VALCOE of nuclear is projected to be $70-110/MWh in 2050.

Therefore, RE is the obvious technology to build upon any power sector decarbonization strategy.

Electrification is most cost-effective for decarbonization

In all scenarios, the share of electricity in final energy consumption is projected to significantly increase, from 20% in 2023 to 32-55% in 2050 (Chart 2).

Electricity consumption is set to increase (+85-107% globally by 2050) because electrification is the most-cost effective solution for decarbonization. The IEA foresees electricity providing heating, cooling and mobility, powering motors and appliances, and producing onsite electrolytic hydrogen for heavy industry.

Chart 2: World – Final Energy Consumption, Share of Electricity

Thus, the contribution of electricity to the decarbonization of the industry and transport sectors is projected to largely exceed those of fossil fuels with CCUS and hydrogen (Charts 3 & 4).

Chart 3: World – Final Energy Consumption in Industry, Selected Decarbonized Technologies

 Chart 4: World – Final Energy Consumption in Transport, Selected Decarbonized Technologies

As a result, RE is not only the best option to decarbonize the power sector, but also RE based electricity is the best option to decarbonize industry and transport.

Poor coverage of Japan’s future

For readers looking for insights about Japan, it is difficult to find relevant information in this year’s WEO. On the one hand the quantity and quality of information on this country is rather limited, on the other hand projections for Japan are sometimes mixed with those for South Korea.

This lack of visibility may be interpreted as a sign of Japan’s shrinking influence in shaping the future global energy system. This should be a source of concern for Japanese policymakers. The world is going through a true energy revolution, characterized by unprecedented economic opportunities for producers and consumers to make our environment more sustainable. This revolution is not fully acknowledged in Japan yet. The risk for the country to be left behind is real.

In a year when the IEA chose to highlight energy security as a major theme of the WEO, two facts about Japan included in the report, however, deserve to be stressed.

First, Japan heavily relies on oil imports from the Middle East (nearly 80% in 2023). In terms of energy supply, oil is Japan’s largest source of energy. And the IEA states a “clear risk of escalating conflict in the Middle East”, without explicitly referring to the very tensed diplomatic relations between Israel and its neighbors. This is a pressing issue that cannot be ignored.

Second, Japan negatively stands out for its insufficient financial support in favor of the domestic manufacturing of clean energy technologies (Chart 5). With a combined budget of only $3 billion, the direct incentives for domestic manufacturing (i.e., tax credits and subsidies) from the Economic Security Promotion Act and GX Green Transformation Policy are ridiculously low compared to the $51 billion from the different American schemes (including the landmark Inflation Reduction Act). In both China and the European Union, these incentives amount to around $25 billion. This enormous gap reveals the Japanese government’s terrible deficit of industrial vision the country direly needs.

Chart 5: Selected Governments – Direct Incentives for Domestic Manufacturing since 2020