Beyond COP28: Global Energy Transition Trends and Outlook for 2024
The global energy landscape today presents a complex and challenging scenario. Despite significant advancements in renewable energy technologies, the world's energy system remains predominantly reliant on fossil fuels. According to the International Energy Agency's (IEA) 2019 report, fossil fuels - comprising oil, coal, and natural gas - accounted for over 81% of global energy production. This heavy dependence on fossil fuels is a critical concern, considering their role in greenhouse gas emissions and climate change.
Renewable capacity, though set to meet 35% of global power generation by 2025, still plays a secondary role in the global energy mix compared to fossil fuels. This disparity highlights the significant challenge of transitioning to a cleaner energy future. In 2023, investments in oil and gas exploration, extraction, and production were expected to set a new record high since 2015, touching nearly $528 billion, keeping the world sufficiently supplied until 2028, as stated by the IEA.
The urgency for the green energy transition is further underscored by the alarming findings of the IPCC's "Climate Change 2021: The Physical Science Basis" report. The report paints a stark picture of the climate crisis, linking human activities, notably the burning of fossil fuels, to the increasing frequency and severity of extreme weather events, rising global temperatures, and other destabilizing climate changes. These impacts are not just environmental but also have profound socio-economic implications.
COP28, hosted by the United Nations in Dubai in 2023, is a monumental event in the ongoing global efforts to combat climate change. As one of the largest climate change conferences, it brought together world leaders, scientists, activists, and policymakers to address the urgent need for environmental action.
The main takeaway from COP28 was the global consensus among nearly 200 countries to transition from fossil fuels to renewable energy, underscoring the commitment of nations to invest in green energy sources. This agreement marked a significant shift in international climate policy, reflecting a growing recognition of the urgency to mitigate the impacts of climate change. The summit also called on countries to triple renewable energy capacity by 2030.
This blog aims to delve into the implications and future outlook following COP28, with a particular focus on global energy transition trends in 2024. We’ll examine how countries plan to implement the commitments made at the conference, their challenges, and their potential impact on global climate goals. The blog also aims to provide a comprehensive understanding of how COP28's outcomes could shape the future of energy production and consumption and what this means for the global fight against climate change.
The 2024 Global Energy Transition Outlook
As we enter the new year, forecasts by the IEA suggest the global renewable energy capacity will surpass 4500 gigawatts in 2024, placing it almost at par with fossil fuels. Energy trends indicate the shift from fossil fuels to renewable energy sources has been accelerating, driven by technological advancements, policy support, and increasing public awareness of climate change issues.
Here are trends that will drive the energy transition in 2024:
Increased attention to renewable energy technologies: Governments are paying closer attention to developing and using renewable energy technologies despite complex business environments and an uncertain economic outlook. The World Energy Outlook (WEO) predicts that as we get closer to 2030, clean technologies will continue to take center stage. By 2030, there would be ten times the number of electric vehicles, solar PVs generating more energy than the US’ current power system, rising investments in offshore wind projects, and an increased global demand for heat pumps and other electric heating systems.
Renewable energy investments remain attractive: Despite near-term challenges, it is certain the 2023 investment boom in renewable energy is set to continue into 2024 and beyond, thanks to existing policy incentives. Forbes highlights that the renewable energy sector is expected to attract more than $10 trillion in investment by 2050, with solar and wind power leading the way.
Government initiatives: 2024 will see continued growth in government initiatives to accelerate the growth of renewables. In the United States, the Inflation Reduction Act’s (IRA) Investment Tax Credit for Energy Storage boosts energy storage technologies like batteries, driving the renewable energy industry forward. REPowerEU and the Green Deal Industrial Plan are key schemes to help the EU achieve its 2030 renewable energy targets by focusing on energy saving, clean energy production, and diversifying the EU’s energy supplies. In the Carrebian, the Dominican Republic has also passed two bills that eliminate complex legislative barriers and promote the adoption of battery energy storage systems (BESS).
Improved grid functioning: Efforts to reduce current grid constraints will be a prominent area of focus globally. With increased investments, grid capabilities in 2024 will evolve to ensure that the new sources of energy being created can be transported and delivered. Innovations like microgrids would multiply as they can operate independently as localized grids, separate from the larger grid, helping communities become more self-sufficient. This system signifies the onset of decentralized solutions that are more efficient rather than traditional centralized systems used with fossil fuels.
However, the energy transition also faces several challenges 2024:
Macroeconomic and geopolitical challenges: Energy transition efforts have increased over the past decade but faced challenges due to macroeconomic and geopolitical issues since 2022. Recently, the war between Israel and Hamas in Gaza could further cause destabilization of economic growth and reverse the softening of inflation. Energy and mining companies could confront numerous challenges in 2024, including slow economic growth and high interest rates. The Womble Bond Dickinson’s 2024 Energy Transition Outlook Survey report revealed that 56% of decision-makers in the energy industry state that cost and economic impact due to rising interest rates are leading challenges.
Western policies could increase electric vehicle (EV) costs: Western trade policies are increasingly protectionist, aiming to reduce dependency on China. These policies, including the US Inflation Reduction Act and the EU's Critical Raw Materials Act, incentivize critical raw materials sourced from within the country or region, limiting Chinese raw materials, which will risk making EVs more expensive and could slow their uptake.
US regulatory environment challenges: The US energy transition is impeded by its complex regulatory environment. Apart from the IRA, the federal government doesn’t have a comprehensive policy that dictates the nation’s energy reduction efforts, mandates, and deadlines. State-level energy policies are varied, leading to uneven progress across the country. The Federal Energy Regulatory Commission (FERC) and state agencies have divided governance, affecting the momentum of the energy transition.
Permitting and raw material sourcing issues in the US: The US struggles with project permitting and sourcing raw materials for renewable energy projects. Securing domestic sources for critical commodities is difficult, hindering the advancement of onshore/near-shore supply and encouraging renewable energy deployment.
Conclusion
Post-COP28, the 2024 energy transition outlook is a mix of challenges and opportunities. The conference underscored the urgent need to shift from fossil fuels to renewables, a transition fraught with complexities like geopolitical, economic, and regulatory hurdles. However, there's optimism, too. Increased focus on renewable technologies, increased investments, supportive policies, and advancements in grid technologies are bright spots. In essence, while the path to a sustainable energy future is complex, COP28 has laid the groundwork for innovative, collaborative efforts towards a cleaner, renewable energy landscape in 2024 and beyond.
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