Transforming the Energy System

TRANSFORMING THE ENERGY SYSTEM

– AND HOLDING THE LINE ON RISING GLOBAL TEMPERATURES © IRENA 2019 Unless otherwise stated, material in this publication may be freely used, shared, copied, reproduced, printed and/or stored, provided that appropriate acknowledgement is given to IRENA as the source and copyright holder. Material in this publication that is attributed to third parties may be subject to separate terms of use and restrictions, and appropriate permissions from these third parties may need to be secured before any use of such material.

Citation: IRENA (2019), Transforming the energy system – and holding the line on the rise of global temperatures, International Renewable Energy Agency, Abu Dhabi. ISBN 978-92-9260-149-2

About IRENA The International Renewable Energy Agency (IRENA) is an intergovernmental organisation that serves as the principal platform for co-operation, a centre of excellence, a repository of policy, technology, resource and financial knowledge, and a driver of action on the ground to advance the transformation of the global energy system. IRENA promotes the widespread adoption and sustainable use of all forms of renewable energy, including bioenergy, geothermal, hydropower, ocean, solar and wind energy, in the pursuit of sustainable development, energy access, energy security and low-carbon economic growth and prosperity. www.irena.org

Acknowledgements This report was developed under the guidance of Elizabeth Press and authored by Rabia Ferroukhi, Gayathri Prakash, Xavier Casals, Bishal Parajuli, Nicholas Wagner (IRENA), and Padmashree Sampath (IRENA consultant), with support from Claire Kiss and Neil MacDonald (IRENA). Valuable review and feedback were provided by Dolf Gielen, Ricardo Gorini, Paul Komor (IRENA), Jonas von Freiesleben (Ministry of Climate, Energy and Utilities, Denmark) and Hafida Lahiouel (UNFCCC). Steven Kennedy edited the report. IRENA is grateful for the generous support of the Government of Denmark, which made the publication of this report a reality.

Available for download: www.irena.org/publications For further information or to provide feedback: [email protected]

Disclaimer The designations employed and the presentation of materials featured herein are provided on an “as is” basis, for informational purposes only, without any conditions, warranties or undertakings, either express or implied, from IRENA, its officials and agents, including but not limited to warranties of accuracy, completeness and fitness for a particular purpose or use of such content. The information contained herein does not necessarily represent the views of all Members of IRENA, nor is it an endorsement of any project, product or service provider. The designations employed and the presentation of material herein do not imply the expression of any opinion on the part of IRENA concerning the legal status of any region, country, territory, city or area or of its authorities, or concerning the delimitation of frontiers or boundaries.

2 FOREWORD

FOREWORD from the IRENA Director-General

In response to the threat of climate change, countries around the world have pledged Francesco La Camera to invest in low-carbon energy. National plans and investment patterns, however, Director-General show a stark mismatch with the pathway to meet the commitments set out in the Paris International Renewable Agreement, which would keep the rise in global temperatures well below 2 degrees (°C) Energy Agency and ideally hold the line at 1.5°C.

At least USD 95 trillion worth of energy investments are planned worldwide until mid- century. These must rise to USD 110 trillion to climate-proof the energy mix, IRENA analysis shows. At the same time, planned fossil-fuel investments must be substantially redirected, with annual investments in renewables more than doubled for the coming decade.

Renewables and efficiency together offer the most realistic way to cut energy-related carbon-dioxide emissions in the timeframe identified by the Intergovernmental Panel on Climate Change. Combined with rapid electrification, they can achieve over nine- tenths of the reductions needed.

Transforming the energy system is not only about installing renewables. It is about investing in more flexible infrastructure. It is about rethinking current plans to avoid stranding assets in outdated systems. Aligning energy investments with broader socio- economic policies can ensure just and timely changes that leave no one behind.

The renewables-based transformation would grow employment 14% and add 2.5% to global GDP compared to current plans, IRENA’s roadmap for 2050 indicates. Every dollar spent delivers returns between three and seven dollars in fuel savings, avoided investments and reduced health and environmental damage. The sooner coal- and oil- burning plants are excluded as new investment options, the more countries can benefit from a modern, fit-for-purpose energy system.

The market has given the signal with cost-competitive technologies. Policy makers must now put the enabling frameworks in place to accelerate climate-proof investments. We must create a low-carbon energy system to hold the line on rising global temperatures. It’s possible.

3 CONTENTS

CONTENTS

Figures, tables and boxes______05

Key findings______06

Key numbers______10

1. A climate-safe energy future______12 1.1. Current plans – or a real energy transformation?______14 1.2. What a climate-safe energy transformation looks like –______17 1.3. – and what it would deliver______19

2. Investments needed to hold the line ______20 2.1. Investments in renewable power generation______23 2.2. Investments in energy efficiency______28 2.3. Investments in electrification and direct uses______29 2.4. Breakdown of investment by region______31 2.5. Shifting investment______34

3. Drivers of the energy transformation – and their socio-economic footprint ______36

3.1. Global GDP and job creation______38 3.2. Regional GDP and employment______43 3.3. Varying effects of the shift to renewables______45

4. Policies to ensure equitable outcomes______47 4.1. Deployment policies______48 4.2. Enabling policies______48 4.3. Integration policies______51

References______52

Abbreviations______52 Annex: The socio-economic footprint of Current Plans vs. Energy Transformation______53

4 CONTENTS

CONTENTS FIGURES, TABLES AND BOXES

Figures, tables and boxes______05 Figure 1.1 Annual energy-related CO2 emissions and Figure 3.2 The energy transformation and its reductions, 2010-2050______15 socio-economic footprint______38 Key findings______06 Figure 1.2 Key indicators for two scenarios: Current Plans Figure 3.3 Global GDP, trade, consumer spending and Key numbers______10 vs. Energy Transformation______16 investment differences (%) between Current Plans and Energy Transformation, Figure 1.3 Renewable and non-renewable 2019–2050______39 shares of total primary energy supply until 2050: Two scenarios______17 Figure 3.4 Global employment difference (%) between 1. A climate-safe energy future______12 Current Plans and Energy Transformation, Figure 1.4 Global electricity costs from utility-scale 2019–2050______40 1.1. Current plans – or a real energy transformation?______14 renewable power generation, 2010–2018___ 18 Figure 3.5 Global employment in the energy sector and ______Costs and savings under Energy 1.2. What a climate-safe energy transformation looks like – 17 Figure 1.5 renewables, 2017, 2030 and 2050______41 Transformation until 2050, compared 1.3. – and what it would deliver______19 with Current Plans______19 Figure 3.6 Global employment in Energy Transformation 2050, disaggregated by technology, value Figure 2.1 Cumulative investment in Current Plans segment and required skills______43 2. Investments needed to hold the line ______20 and Energy Transformation scenarios until 2050______21 Figure 3.7 Effect of Current Plans vs. Energy ______23 2.1. Investments in renewable power generation Transformation on GDP in selected regions Figure 2.2 Average annual investments in renewable ______and countries by 2050 (% difference)_____ 44 2.2. Investments in energy efficiency 28 power generation capacity until 2050_____23 2.3. Investments in electrification and direct uses______29 Figure 3.8 Effect of Current Plans vs. Energy Figure 2.3 Cumulative investment in renewable power Transformation on employment in 2.4. Breakdown of investment by region______31 generation capacity until 2050, selected regions and countries by 2050 by technology______26 2.5. Shifting investment______34 (% difference)______45 Figure 2.4 Investments in transmission and distribution Figure 4.1 The policy framework for a just transition___49 networks, energy storage, smart meters and 3. Drivers of the energy transformation – dispatchable fossil-fuel power capacity Figure 4.2 Enabling policy components of the just and their socio-economic footprint ______36 until 2050______27 transition framework______50

3.1. Global GDP and job creation______38 Figure 2.5 Average annual investments in energy ______efficiency measures through 2050 28 Table 2.1 Investment needs through 2050 3.2. Regional GDP and employment______43 under the Current Plans and Figure 2.6 Average annual investments to electrify ______Energy Transformation scenarios, 3.3. Varying effects of the shift to renewables 45 heat and transport through 2050______29 by technology______24 Figure 2.7 Cumulative renewable energy investments Table 2.2 Average annual investments in clean energy Policies to ensure equitable outcomes______47 needed for direct end-uses and heat 4. applications until 2050 ______30 through 2050, by region and by technology______32 4.1. Deployment policies______48 Figure 2.8 Annual clean energy investments for Energy 4.2. Enabling policies______48 Transformation by region through 2050 ___ 31 Table 3.1 Global GDP under Current Plans and Energy Transformation scenarios______39 ______4.3. Integration policies 51 Figure 2.9 Cumulative fossil-fuel investments for extraction, processing and power Table 3.2 Employment differences between Current generation until 2050: Current Plans Plans and Energy Transformation: ______References 52 vs. Energy Transformation______33 Economy-wide, in the energy sector and in renewable energy______42 Abbreviations______52 Figure 2.10 Immediate actions needed at sector level to transform the global energy system_____34 Annex: The socio-economic footprint of Current Plans Box 1.1 Practical options for global energy vs. Energy Transformation______53 Figure 3.1 Needs and opportunities______37 decarbonisation______15

5 KEY FINDINGS KEY FINDINGS

he Paris Agreement sets a goal of “[h]olding the Around the world today, national energy plans and T increase in the global average temperature to well Nationally Determined Contributions (NDCs) fall far below 2°C above pre-industrial levels and pursuing short of the emissions reductions needed. Currently, efforts to limit the temperature increase to 1.5°C the world may exhaust its “carbon budget” for energy- above pre-industrial levels” to significantly reduce related emissions until the end of the century in as the risks and impacts of climate change. The world few as ten years. To hold the line at 1.5°C, cumulative today has less than two decades to make serious energy-related carbon-dioxide (CO2) emissions must cuts in carbon emissions. If we fail, according to the be 400 gigatons (Gt) lower by 2050 than current Intergovernmental Panel on Climate Change (IPCC, policies and plans indicate. 2018), we may cross the tipping point into a future of The International Renewable Energy Agency (IRENA) 1 catastrophic climate change. has explored two broad future paths: Current Plans Ambitious investments in the energy sector – (meaning the course set by current and planned reshaping power generation, transport and other policies); and the path for a clean, climate-resilient energy uses on both the supply and demand sides Energy Transformation.2 Building such a low-carbon, – can provide many of the quick wins needed for climate-safe future can deliver a broad array of socio- a sustainable future. Renewable energy sources, economic benefits, IRENA’s analysis shows. But to coupled with steadily improving energy efficiency, make this happen, the pace and depth of investments offer the most practical and readily available solution in renewables must be accelerated without delay. within the timeframe set by the IPCC. By embarking Renewable energy technologies alone are not upon a comprehensive energy transformation today, enough to achieve massive decarbonisation. The we can start to create a better energy system – one future energy system encompasses three inter- capable of ensuring that average global temperatures related elements: one, renewable energy, would rely at the end of the century are no more than 1.5°C above on steady improvements to energy efficiency and pre-industrial levels. increased electrification of end-use sectors. The cost equation also matters, with affordable renewable power allowing faster, more viable displacement of conventional coal- and oil-burning systems. Renewables and energy efficiency, enhanced through electrification, can achieve over nine-tenths of the cuts

needed in energy-related CO2 emissions

1 Paris Agreement, Art. 2(1)(a). 2 IRENA’s Global Energy Transformation: A Roadmap to 2050 (IRENA, 2019b) analyses and compares these two investment and development pathways as far as mid-century.

7 KEY FINDINGS

Moreover, falling renewable power costs provide Renewables and associated infrastructure account for a crucial synergy with electric mobility and heat. nearly half of the difference, with energy efficiency Renewables-based heat and transport solutions alone and electrified transport and heat applications could provide two-thirds of the energy emissions cuts absorbing the rest: needed to meet agreed international climate goals. Investment to build up renewable power generation Modern, increasingly “smart” grid infrastructure capacity needs to be twice as high as currently allows unprecedented flexibility in energy production, foreseen, reaching USD 22.5 trillion by 2050. distribution and use. But investments are needed to Energy efficiency requires investments of USD 1.1 trillion make the most of these gains. per year, more than four times their present level. Investment patterns must change With solar and wind power on the rise, grid operators need new equipment to make the whole Despite the climate urgency, present investment power system operate flexibly. Some of the solutions patterns show a stark mismatch with the pathway to are market-based, others require investment in hold the 1.5°C line. Investments in low-carbon energy modern technology solutions. Quick-ramping solutions have stalled over the past three years. thermal generation backups, pumped hydropower, Government plans in place today call for investing reinforced transmission and distribution grids, at least USD 95 trillion in energy systems over the digital control equipment, vastly expanded storage coming three decades. But those plans and related capacity, and demand-side management through investments are not always channelled toward climate- heat pumps, electric boilers and behind-the-meter proof systems. The investments must be redirected. batteries are just some of the areas for power system investment. To ensure a climate-safe future, they need to flow into an energy system that prioritises renewables, The transformed energy system would include more efficiency and associated energy infrastructure. With than a billion electric vehicles worldwide by 2050. a different energy investment mix and only USD 15 Combined investments in charging infrastructure trillion added to the total investment amount, the and the electrification of railways could reach USD global energy system could be largely climate-proof, 298 billion yearly. with cost-effective renewable energy technologies Industry and buildings could incorporate more than underpinned by efficient use. 300 million highly efficient heat pumps, more than USD 3.2 trillion – representing about 2% of gross ten times the number in operation today. This means domestic product (GDP) worldwide – would have investments of USD 76 billion each year. to be invested each year to achieve the low-carbon To deepen the system’s synergies even more, energy transformation. This is about USD 0.5 trillion nearly 19 exajoules of global energy demand could more than under current plans. While cumulative be met by renewable hydrogen – that is, hydrogen global energy investments by 2050 would then be 16% produced from renewable sources. But that means higher, their overall composition would shift decisively adding nearly 1 terawatt of electrolyser capacity by away from fossil fuels. 2050 at an average investment cost of USD 16 billion per year worldwide. Transforming the energy Investments in renewable heating, fuels and direct system means doubling uses, which totalled around USD 25 billion last year planned investments in (IEA, 2019a), must nearly triple to USD 73 billion per renewable power generation year over the coming three decades. over the next three decades

8 KEY FINDINGS

East Asia would account for the highest annual While such indicators are highly encouraging, energy investments in the energy transformation until investment can no longer be pursued in isolation from 2050, at USD 763 billion, followed by North America its broader socio-economic context. As countries at USD 487 billion. Sub Saharan Africa and Oceania turn increasingly to renewables, they will need a would see the lowest, at USD 105 billion and USD 34 comprehensive policy framework for the ensuing billion per year, respectively. transformation. Plans and investment strategies must be accompanied by a clear, integrated assessment To stay below the IPCC’s recommended 1.5°C limit, of how the energy system interacts with the broader the world must shift nearly USD 18.6 trillion of its economy for a just and timely transition. cumulative energy investments until 2050 from fossil fuels to low-carbon technologies. Average annual Countries seeking to stimulate economic growth can fossil-fuel investments over the period would then fall simultaneously optimise the effects of renewables to USD 547 billion – about half of what the fossil fuel and minimise the cost of economic and employment industry invested in 2017. adjustments. Far-sighted energy investment policies, when harnessed to savvy socio-economic policies, can help to ensure a just transformation that leaves Every dollar spent can bring no one behind.

returns as high as seven Through informed investments starting today, dollars in fuel savings, avoided countries and communities can scale up renewables investments and reduced health cost-effectively, make steady gains in energy and environmental damage efficiency and achieve extraordinary synergies through electrification. The transformed energy system by 2050 should be able to meet the world’s needs for the second half of the century. By shifting investments, the world can achieve greater If socio-economic needs and aspirations are fulfilled gains. Fortunately, transforming the energy system in parallel, such changes are likely to gain acceptance turns out to be less expensive than not doing so. This is and endure even beyond today’s urgent shifts to true even without factoring in the payoffs of mitigating mitigate climate change. Only then will the global climate change and achieving long-term sustainability. energy transformation be truly sustainable. Through 2050, the amounts saved by reducing net energy subsidies and curtailing environmental health damage would exceed investments by three to seven times.

Investments in the energy transformation could create about 98 trillion in additional GDP gains by 2050 A transformed energy compared to current plans, IRENA’s analysis shows. system would help to fulfil

Jobs in the energy sector would increase by 14% the Sustainable Development with the transformation. New jobs would outweigh Goals and stimulate benefits job losses, even with the decline in jobs linked to across multiple sectors fossil fuels. Renewable energy jobs would grow an estimated 64% across all technologies by 2050.

9 KEY NUMBERS

10 USD 95 trillion CURRENT PLANS USD 110 trillion +15 ENERGY TRANSFORMATION trillion USD more needed

Fossil fuels - supply Electriﬁcation Fossil fuels - power Power grids and energy ﬂexibility Nuclear Biofuels Energy e ciency Hydrogen Renewables - power Others Renewables - end-uses

Fossil fuels - supply Fossil fuels - power Nuclear Energy e ciency Renewables – power +15 Renewables – end-uses 95 trillion USD 110 more needed trillion USD trillion USDKEY NUMBERS Electriﬁcation Power grids and energy ﬂexibility Biofuels

USD 95 trillion investmentsCURRENT PLANS in USD Hydrogen USD 110 trillion +15 trillion ENERGY TRANSFORMATION trillion USD +15 the sector bymore needed compared to

Fossil fuels - supply Others Electriﬁcation 2050Fossil fuels - topower achievePower grids and energy ﬂexibility Nuclear Biofuels Energy e ciency Hydrogen Renewables - power 110 Others CURRENT PLANS USD trillion ENERGYRenewables - end-uses TRANSFORMATION

Fossil fuels - supply Fossil fuels - power Nuclear Energy e ciency Renewables – power 95 110 Renewables – end-uses trillion USD trillion USD Electriﬁcation Power grids and energy ﬂexibility Biofuels Hydrogen Others See Figure 2.1 for breakdown of energy types in 2050. Investment in Energy Efficiency: USD 37 trillion vs. USD 29 trillion Investment in Renewable USD Energy: 27 trillion vs. USD 12 trillion

Power Changes in trade, End uses Biofuels spending and investment patterns See Figure 3.3 for analysis

USD USD USD higher 22.5 trillion 2.5 trillion 2 trillion GDP vs. USD 12 trillion vs. USD 1 trillion vs. USD 1 trillion 2.5%

more jobs 7million

11 A CLIMATE-SAFE ENERGY FUTURE

12 A CLIMATE-SAFE ENERGY FUTURE 01

reating a sustainable, affordable, secure and that the global average temperature by the end of the Cinclusive energy system is imperative to underpin century is no more than 1.5°C above the pre-industrial global development. The need for this wide-ranging level, as recommended by the Intergovernmental transformation, while not entirely new, has taken on Panel on Climate Change (IPCC). Limiting warming a pronounced urgency and immediacy as part of the to 1.5°C, the IPCC notes, implies reaching net zero international response to climate change. CO2 emissions globally around 2050, with concurrent While the future of energy is hard to predict, the deep reductions in emissions of methane, ozone and contours of the new system are clear enough. Whether other climate-impacting emissions. in the realm of light, heat or mobility, renewable The IPCC also stresses that a world adhering to the sources – including bioenergy, solar and wind power, 1.5°C pathway would see greenhouse gas emissions alongside hydropower, geothermal and nascent ocean fall rapidly in the coming decade. But getting there will energy – are at the core of any viable climate solution. require action on many fronts: reductions in energy The global energy system is thus on the cusp of demand, decarbonisation of electricity and other fuels unprecedented change—unprecedented in speed, (notably by ambitious deployment of renewables), breadth and reach. The transformation is already and electrification of energy end use, among other reshaping economies and societies, creating new measures. The success of this pathway must be linkages between sectors and redefining the underpinned by very ambitious, internationally co- relationships between energy producers, consumers, operative policy environments that transform both networks and markets. energy supply and demand (IPCC, 2018). A strong – and continuously improving – business The decisive shift in the energy mix necessary to case for renewables offers an economically attractive ensure the planet’s survival is not an accomplished response to concerns about the climate. The new fact. Renewable energy has yet to make sufficient paradigm also addresses energy security, sustainable inroads into the so-called end-use sectors, such as growth and employment, accompanied by solid direct heat, buildings and transport. The next wave payoffs for countries and communities in the medium of cost reductions in renewable energy technologies term. Renewables have accounted for more than half (notably in system design and construction), along of all capacity additions in the global power sector with further technological breakthroughs, may well since 2011, with their share in total power generation determine whether the decisive shift occurs in time to increasing steadily. Total renewable power capacity to stay on a 1.5°C pathway. in 2018 exceeded 2 300 gigawatts (GW) globally Ultimately, investment in a comprehensive transformation (IRENA, 2019a), with most growth coming from new – involving not just a mix of technologies but equally installations of wind and solar energy. the policy package to put them in place and optimise Renewable energy, coupled with energy efficiency, is their economic and social impact – will be the key to a the key to a world energy system capable of ensuring climate-safe future.

13 A CLIMATE-SAFE ENERGY FUTURE

1.1. Current plans – or a real energy However, to limit warming to 1.5°C, annual energy- transformation? related CO2 emissions would need to fall by more than 70% between now and 2050, from 34 Gt to at The International Renewable Energy Agency (IRENA) least 9.8 Gt. A large-scale shift to renewable energy has explored the levels of effort demanded by two and electrification could deliver three-quarters of the energy pathways—the first being the course charted needed reduction, or as much as 90% with ramped-up by current plans and policies; the second, a climate- energy efficiency.4 resilient course based on a level of investment sufficient

to ensure that the ongoing energy transformation CO2 emission trends over the past five years show achieves the 1.5°C goal.3 annual growth in emissions of 1.3%. If this pace were maintained, the planet’s carbon budget would be The genesis of the two pathways is explored in Box 1.1. largely exhausted by 2030, setting the planet on track Current national plans around the world fall far for a temperature increase of more than 3°C above pre- short of the emissions reductions needed to reach industrial levels. This case cannot be considered as a either the goal articulated in the Paris Agreement on baseline scenario, as many governments, by signing the climate change or the 1.5°C IPCC recommendation. Paris Agreement in 2015, committed to reducing their Analyses of current and planned policies show that emissions. Under current plans and policies, therefore, the world will exhaust its “budget” of energy-related CO2 emissions should drop from the historical trend. carbon dioxide (CO ) emissions in 10–18 years. To 2 However, those plans are not nearly ambitious enough limit the global temperature rise to 1.5°C, cumulative to meet the 1.5°C goal by 2050. emissions must be reduced from those specified in Thus, the need to accelerate the pace of the world’s current and planned policies by at least a further energy transformation. As shown in Figure 1.1, such 400 gigatons (Gt) by 2050. acceleration is needed across a range of sectors Figure 1.1 shows the path of annual energy-related and technologies, ranging from deeper end-use CO emissions and reductions in both the Current 2 electrification of transport and heat powered by Plans (indicated by the yellow line) and Energy renewables, to direct renewable use, energy efficiency Transformation (indicated by the green line) scenarios. and infrastructure investment. In Current Plans, energy-related CO2 emissions are expected to increase each year until 2030, before dipping slightly by 2050 to just below today’s level.

3 The investment needs estimated here are based on the roadmap laid out in IRENA’s Global Energy Transformation: A Roadmap to 2050 (IRENA, 2019b). 4 The Energy Transformation scenario focuses on deployment of low-carbon technologies, based largely on renewable energy and energy efficiency, to generate a transformation of the global energy system consistent with a 1.5°C carbon budget, which would be within the envelope of scenarios presented in the IPCC Special Report on Global Warming of 1.5°C (IPCC, 2018).

14 A CLIMATE-SAFE ENERGY FUTURE

Figure 1.1: Annual energy-related CO2 emissions and reductions, 2010–2050 Gt/yr

35 CURRENT PLANS 33 Gt in 2050 Buildings Electriﬁcation 30 of heat and Buildings transport w/RE: Renewable Transport 36% energy and 25 electriﬁcation District Heat Transport 70% emission deliver 75% Renewable of emission reductions energy: 20 resulting reductions Power 39% District Heat from the Energy 15 Transformation Energy Industry e ciency Power and others: 25% 10 ENERGY TRANSFORMATION 9.8 Gt in 2050 5 Industry

0 2010 2015 2020 2025 2030 2035 2040 2045 2050

Based on IRENA, 2019b. Note: “Renewables” in the caption denotes deployment of renewable technologies in the power sector (wind, solar photovoltaic, etc.) and in direct end-use applications (solar thermal, geothermal, biomass). “Energy efficiency” denotes efficiency measures in industry, buildings and transport (e.g., improving insulation of buildings or installing more efficient appliances and equipment). “Electrification” denotes electrification of heat and transport applications, such as heat pumps and electric vehicles. Gt = gigaton; RE = renewable energy.

Box 1.1 Practical options for global energy decarbonisation IRENA has explored global energy development options Assessing the additional potential for scaling up or from two main perspectives: the course set by current optimising low-carbon technologies and approaches, and planned policies; and a cleaner, climate-resilient including renewable energy, energy efficiency and pathway based on more ambitious uptake of renewables electrification, while also considering the role of other and associated technologies. Throughout this report the technologies; first, or Current Plans, provides a comparative baseline Developing a realistic, practical Energy Transformation for a more ambitious Energy Transformation. scenario, referred to in other publications as the REmap Global Energy Transformation: A Roadmap to 2050 Case. This calls for considerably faster deployment (IRENA, 2019b) analyses and compares these two of low-carbon technologies, based largely on investment and development pathways as far as mid- renewable energy and energy efficiency, resulting in a century. transformation in energy use to keep the rise in global The ongoing roadmap analysis, updated annually, temperatures this century as low as 1.5°C compared to involves several key steps: pre-industrial levels. The scenario focuses primarily on cutting energy-related carbon-dioxide (CO ) emissions, Identifying the Current Plans for global energy 2 which make up around two-thirds of global greenhouse development as a baseline scenario (or Reference Case) gas emissions; for comparing investment options worldwide as far as 2050. This presents a scenario based on governments’ Analysis of the cost, benefits and investment needs current energy plans and other planned targets and for low-carbon technologies worldwide to achieve the policies, including climate commitments made since envisaged energy transformation. 2015 in Nationally Determined Contributions under the For more on the global roadmap and its underlying Paris Agreement; analysis, see www.irena.org/remap

15 A CLIMATE-SAFE ENERGY FUTURE

Figure 1.2: Key indicators for two scenarios: Current Plans vs. Energy Transformation

Share of electricity in ﬁnal energy consumption

CURRENT PLANS 20% 24% 29% 27% 38% 30% 49% ENERGY TRANSFORMATION

2018 2030 2040 2050

Renewable energy share in power generation 25% 38% 57% 47% 75% 55% 86%

2018 2030 2040 2050

Renewable energy share in end-use sectors Variable renewable energy capacity

GW GW 8 000 8 000 11% 17% 28% Wind capacity Solar capacity 6 000 6 000

2017/2018 2030 4 000 4 000

21% 46% 25% 66% 2 000 2 000

0 0 2018 2030 2040 2050 2018 2030 2040 2050 2040 2050

Electriﬁed transport Electriﬁed heating and cooling Biofuels for transport Numbers of EVs Numbers of heat pumps Liquid biofuels for transport 2018 2018 2018

2030 2030 2030

2040 2040 2040

2050 2050 2050

0 400 800 1 200 0 100 200 300 400 0 200 400 600 800 Million Million bln litres/year

Energy eciency Total fossil-fuel demand reduction relative to today

GJ Total ﬁnal energy t CO2 per cap consumption per capita per cap Emissions per capita 60 5 20% 41% 64% 4 40 3 9% 9% 6% 2 20 1 0 0 2030 2040 2050 2018 2030 2040 2050 2018 2030 2040 2050

IRENA analysis Note: Total wind capacity includes both on-shore and off-shore wind; total solar photovoltaic capacity includes both utility and small scale. EVs = electric vehicles; GJ = gigajoule; GW = gigawatt.

16 A CLIMATE-SAFE ENERGY FUTURE

1.2. What a climate-safe energy Electrification with renewables is the single- transformation looks like – largest driver for change in the global energy transformation. The share of electricity in total final To maintain the 1.5°C pathway, the share of renewable energy consumption (TFEC) increases under the energy in total primary energy supply (TPES) Energy Transformation scenario from just 20% today will have to rise from 14% today to at least 65% in 2050 to 49% by 2050. The share of electricity consumed (Figure 1.3). Under IRENA’s Energy Transformation in industry and buildings doubles to reach 42% scenario,the use of renewable energy would nearly and 68%, respectively, in 2050, and in transport it quadruple by 2050.TPES would also fall slightly increases from just 1% today to over 40% in 2050. below today’s levels. From 2010 to 2016, with growth The most substantial growth in the use of clean in population and economic activity, TPES grew 1.1% electricity over other fuels will need to come from per year. Current plans would reduce this figure to the building sector (for space heating) and cooking, 0.6% per year to 2050, whereas, under the Energy and in the transport sector for passenger and road Transformation scenario, it would turn negative freight (IRENA, 2019b). and show a decline of 0.2% per year to 2050 (IRENA, 2019b).5 The increasing use of electricity generated from renewable sources reduces inefficient fuel consumption. Under the Energy Transformation To protect the climate, the global scenario, energy efficiency thus improves, owing energy supply must become more to an increase in renewables-based electrification, efficient and more renewable especially in transport and heat.

Figure 1.3: Renewable and non-renewable shares of total primary energy supply until 2050: Two scenarios

EJ 800 Accelerated deployment TPES of renewables, electriﬁcation 700 increases 24% and energy e ciency by 2050 under results in a reduction in total primary energy supply to 600 current policies 27% slightly below today's level Renewable 500 14% Non-renewable 400 65% 300 86% 73% 200

100 35% 0

2016 2050 2050 CURRENT PLANS ENERGY TRANSFORMATION

Based on IRENA, 2019b Note: EJ = exajoule; TPES = total primary energy supply.

5 For more about the REmap methodology, see www.irena.org/remap/methodology

17 A CLIMATE-SAFE ENERGY FUTURE

With the electricity mix significantly transformed, the technologies (Figure 1.4) and wider adoption of carbon intensity of electricity drops by 90%. The power electric technologies for end-uses in transport and sector sees the wide-scale deployment of renewable heat. That synergy alone could provide two-thirds of energy and increasingly flexible power systems, the energy-related emissions needed to set the world supporting integration of variable renewable energy on a path to fulfillment of the Paris Agreement and the (VRE). The share of renewable energy in the power IPCC 1.5°C recommendation. sector increases from 24% today to 86% in 2050. This Deploying the solutions and technologies required to transformation will require new approaches to power reduce the carbon intensity of the global economy by system planning, system and market operations, and two-thirds by 2050, as in the Energy Transformation regulation and public policies (IRENA, 2019b). case, would result in lowering total primary energy The most important synergy of the global energy supply in that year slightly below 2016 levels, even transformation is created by the combination though the economy would be three times larger of increasingly inexpensive renewable power than today.

Figure 1.4: Global electricity costs from utility-scale renewable power generation, 2010–2018

2018 USD/kWh 0.4

0.371 0.341 95th percentile

5th percentile 0.3

0.2 0.185 0.127 Fossil fuel cost range 0.159

0.1 0.072 0.075 0.062 0.085 0.085 0.056

0.037 0.047 0.048 0 2010 2018 2010 2018 2010 2018 2010 2018 2010 2018 2010 2018 2010 2018

Bioenergy Geothermal Hydro Solar Concentrating Oshore Onshore photovoltaic solar power wind wind

Capacity MW <_1 100 200 >_300

Source: IRENA, 2019c. Note: These data are for the year of commissioning. The diameter of the circle represents the size of the project, with its centre the value for the cost of each project on the Y axis. The thick lines are the global weighted average levelised cost of electricity (LCOE) for plants commissioned in each year. The real weighted average cost of capital (WACC) is 7.5% for countries of the Organisation for Economic Co-operation and Development and China, and 10% for the rest of the world. The beige band represents the cost range of fossil fuel–fired power generation cost; the grey bands for each technology and year represent the 5th and 95th percentile bands for renewable projects. MW = megawatt; USD/kWh = US dollar per kilowatt-hour.

18 A CLIMATE-SAFE ENERGY FUTURE

Renewable-based technologies are fast becoming the least-cost energy supply option

1.3. – and what it would deliver Up to 2030, these benefits can be reaped with low additional investments over Current Plans. After 2030, Transforming the energy system would cost less than no additional investments are needed (compared with not doing so, even without factoring in the estimated Current Plans). Indeed, required investments drop payoffs of mitigating climate change and achieving in the Energy Transformation case because of the sustainability. Through 2050, the amounts saved by declining costs of renewable technologies. reducing (net) subsidies and curtailing the damage to human and environmental health from emissions and The investments that will have to be made through other forms of energy pollution exceed the investment 2050 to ensure that the Energy Transformation costs by three to seven times (Figure 1.5). scenario becomes a reality are laid out in the next section – by sector and by world region. Section 3 then In other words, every additional dollar spent on the analyses the socio-economic footprint associated energy transformation between now and 2050 will with variants of the energy transformation before the pay back USD 3 to USD 7 in fuel savings, avoided focus shifts to policy in the concluding section. investments and reduced externalities. Cumulative net savings over the period would be between USD 45 trillion and USD 140 trillion – about two years of current global GDP.

Figure 1.5: Costs and savings under Energy Transformation until 2050, compared with Current Plans

USD trillion

175 High estimate

150 Over 46 125 7x Reduced externalities - savings climate change 100 39 Reduced externalities - Low estimate 75 outdoor air pollution

At least 50 17 Reduced externalities - 3x 13 57 indoor air pollution 25 savings 20 Fossil fuel subsidy savings 0 15 15 1x costs -21 Savings from Savings due to higher-end reduced subsidies assessment in external cost reductions Incremental energy and externalities related to air pollution system costs (with lower-end assessment) and climate change

IRENA, 2019b Every dollar spent on Energy Transformation will deliver a payoff between three and seven dollars, depending on how externalities are valued. As use of renewables rises, net energy subsidies fall, as do health costs from air pollution and climate effects. Half of the additional spending under the Energy Transformation case could be recovered through avoided subsidies

19 INVESTMENTS NEEDED TO HOLD THE LINE

20 INVESTMENTS NEEDED TO HOLD THE LINE 02

nvestments in clean energy stalled over the last energy system – including infrastructure and clean Ithree years while investments in fossil fuel sectors technologies – would be USD 95 trillion under the rose, indicating a clear mismatch between current Current Plans scenario; and USD 110 trillion under trends and the decarbonisation pathway envisaged Energy Transformation. by the Paris Agreement, which is also reflected in the Around USD 3.2 trillion would have to be invested each 1.5°C limit recommended by the IPCC (IEA, 2019a). year (representing about 2% of average global gross IRENA estimates that global investment in renewable domestic product [GDP] over the period) to achieve power came to USD 309 billion in 2018, down the low-carbon energy system (Figure 2.1), some slightly from the 2017 level.6 Another USD 20 billion USD 0.5 trillion more than under Current Plans. To was invested in end-use renewables (solar thermal, put this in perspective, 2017 investment in the global bioenergy for heating, geothermal heat, etc.), bringing energy system was USD 1.8 trillion (IEA, 2018). the year’s total renewable energy investment to Renewable energy and associated infrastructure USD 329 billion. Investment is also taking place would account for just under half of the difference in innovation and research and development. An between the two scenarios, with energy efficiency estimated USD 50 billion was invested in “smart and electrification of transport and heat applications energy,” considered to be equity raising by companies absorbing the rest. focusing on smart grids, digital energy, energy storage Deploying the solutions and technologies required to and electric vehicles. Global public investment in R&D reduce the carbon intensity of the global economy by related to low-carbon energy technologies grew by 5% two-thirds by 2050, as in the Energy Transformation over the year, according to the International Energy case, would result in lowering total primary energy Agency, reaching USD 23 billion, while corporate supply in that year slightly below current levels, even investment in clean energy amounted to around USD though the economy would be three times larger than 90 billion (IEA, 2019b). today. Under current plans and policies, investments will need to increase by 50% from recent volumes to For the 1.5°C pathway, meet growing global energy demand. Getting on the 1.5°C pathway will require a doubling of current energy investments will have to annual investments in clean technologies. From shift toward renewables, energy now through 2050, cumulative investments in the efficiency and electrification of heat and transport applications

6 Bloomberg New Energy Finance estimates that global investment in renewable power technologies, excluding large hydropower, totalled USD 272 billion in 2018 (BNEF, 2019). IRENA estimates that investment in large hydropower was approximately USD 37 billion.

21 USD 95 trillion CURRENT PLANS USD 110 trillion +15 ENERGY TRANSFORMATION trillion USD more needed

INVESTMENTS NEEDED TO HOLD THE LINE AT 1.5°C Fossil fuels - supply Electriﬁcation Fossil fuels - power Power grids and energy ﬂexibility Nuclear Biofuels Energy e ciency Hydrogen Renewables - power Others Renewables - end-uses Figure 2.1: Cumulative investment in Current Plans and Energy Transformation scenarios until 2050

Fossil fuels - supply Fossil fuels - power Nuclear Energy e ciency Renewables – power +15 Renewables – end-uses 95 trillion USD 110 more needed trillion USD trillion USD Electriﬁcation Power grids and energy ﬂexibility Biofuels Hydrogen Others CURRENT PLANS ENERGY TRANSFORMATION

Source: IRENA analysis. Note: USD throughout the report indicates the value in 2015.

For the 1.5°C pathway, energy investments will have to shift toward renewables, energy efficiency and electrification of heat and transport applications

Looking further at how investment volume changes end-use sectors and for measures to enable power over time in the Energy Transformation case, average grids to accommodate rising shares of variable annual investments in the energy sector would amount renewable energy. Investments in direct end-use to USD 4.3 trillion until 2030, more than double the renewable energy technologies would also need to historical average level of USD 1.85 trillion. The bulk triple between 2030 and 2050. is needed for energy efficiency measures in end-use The transition toward a decarbonised global energy applications and investments in the power sector, with system will require scaling up investments in the most of the remainder going to upstream primary energy sector by a further 16% over Current Plans energy supply, plus a small amount for renewable – an additional USD 15 trillion by 2050 – with the energy in end uses. composition of investments shifting away from the Average annual investments in 2030-50 would fossil fuel sector (Table 2.1). Overall, the Energy drop to between USD 2.6 trillion and USD 2.8 trillion Transformation case would require an additional owing to lower investments in fossil fuels, both investment of USD 36 trillion in energy efficiency, in terms of upstream supply and as the basis for renewable energy, power grids and flexibility, power generation. The drop represents an overall and other technologies. But it would also render savings of USD 0.1 trillion to USD 0.3 trillion/per year unnecessary USD 18.6 trillion in investments in fossil compared with Current Plans. fuels, leaving an overall incremental investment need However, greater incremental investments would still of USD 15 trillion to 2050 (or USD 441 billion/year), a be needed for energy efficiency improvements in 16% increase in investment over Current Plans.

22 INVESTMENTS NEEDED TO HOLD THE LINE AT 1.5°C

With an eye to realising the Energy Transformation 2.1. Investments in renewable power scenario in practice, each of the renewable-based generation technology categories represented in Table 2.1 is The decarbonisation options of the Energy considered separately in the subsequent sections. Transformation scenario would require investment Those are followed by a breakdown of investment of nearly USD 22.5 trillion in renewable power needs by region and an examination of how investment generation capacity through 2050, almost double the flows will need to shift. amount under Current Plans (USD 11.7 trillion). Annual investments would double to more than USD 660 billion per year (Figure 2.2). Much of the total would go into wind (45%) and solar PV (30%), followed by bioenergy (9%), hydropower (7%) and concentrated solar power (4%) (Figure 2.3).

Under the Energy Transformation scenario, USD 22.5 trillion would be invested in renewable power

Figure 2.2: Average annual investments in renewable power generation capacity until 2050

USD billion/yr. Historical Projected 700 662

600 500 >2x 400 343 309 300

200

100

2018 2016 – 2050 2016 – 2050 CURRENT PLANS ENERGY TRANSFORMATION Source: IRENA analysis Note: 2018 data is based on BNEF (2019) and IRENA estimates.

23 INVESTMENTS NEEDED TO HOLD THE LINE AT 1.5°C

Table 2.1: Investment needs through 2050 under the Current Plans and Energy Transformation scenarios, by technology

Category Cumulative investments Difference Comments between 2016 and 2050

Renewables-basedtrillion USD trillion USD • Chiefly, construction of power generation25 25 22.5 22.5 generation25 capacity25 fuelled capacity by wind and solar PV 20 20 + 10.8 + 10.820 20 (excl. electrification) trillion USD trillion USD 15 11.715 11.7 15 15

10 10 10 10

5 5 5 5

0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation

Power grids andtrillion USD trillion USD • 80% for extension and flexibility 14 14 12.7 12.7 reinforcement15 15 of transmission 12 12 and distribution networks +3.3 +3.312 12 10 9.410 9.4 trillion USD trillion• Balance USD for smart meters, 8 8 energy9 storage9 (pumped 6 6 hydro, battery storage), and retrofitted6 or new6 generation 4 4 capacity to ensure adequate 3 3 2 2 reserve capacity 0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation

Energy efficiencytrillion in USD trillion USD • 50% for building renovations end-use sectors40 40 37.4 37.4 and40 construction40 of new (excluding + 8.5 + 8.5efficient35 buildings35 electrification)30 28.930 28.9 trillion USD trillion USD30 30 • Balance for improvements in 25 25 transport and industry 20 20 20 20 15 15 10 10 10 10 5 5 0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation

Electrificationtrillion USD trillion USD • 80% for charging infrastructure of end-use 14 14 13.24 13.24 for15 electric vehicles15 and sectors 12 12 electrification of railways + 9.95 + 9.9512 12 10 10 trillion USD trillion• Balance USD for heat pumps in 8 8 buildings9 (12%)9 and industry 6 6 (8%) 6 6 4 3.294 3.29 • Fraction of 1% for 1 TW 2 2 of electrolyser3 capacity3 to produce 19 exajoules of 0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation hydrogen.

Note: EJ = exajoule; PEM = polymer electrolyte membrane; PV = photovoltaic; TW = terawatt.

24 INVESTMENTS NEEDED TO HOLD THE LINE AT 1.5°C

Table 2.1: (continued)

Category Cumulative investments Difference Comments between 2016 and 2050

Direct applicationstrillion USD trillion USD • 42% for biofuel production of renewables 5 5 4.5 4.5 to decarbonise5 5the transport sector, especially aviation and 4 4 +3.23 +3.23shipping4 4 trillion USD trillion USD 3 3 • 40%3 for solar thermal3 deployments in industry 2 2 1.27 1.27 (primarily)2 and 2buildings 1 1 • 11% 1for modern 1biomass; balance for geothermal 0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation deployment

Other trillion USD trillion USD • Includes carbon capture 0.5 0.5 and0,40 storage in0,40 industry and 0.4 0.4 efficiency0,35 improvements0,35 in 0.4 0.4 +0.4 +0.4materials0,30 0,30 0.3 0.3 trillion USD trillion0,25 USD 0,25 0,20 0,20 0.2 0.2 0,15 0,15 0.1 0.1 0,10 0,10 0 0 0,05 0,05 0.0 0.0 0,00 0,00 Current Plans CurrentEnergy Plans TransformationEnergy Transformation

Non-renewablestrillion USD trillion USD • More than 90% of change due to lower spending on 45 39.945 39.9 40 40 40 40 fossil35 fuels (upstream35 supply, 35 35 generation capacity) 30 30 30 30 –20.1 –20.1 25 25 25 25 trillion USD trillion• Balance USD reflects avoided 20 20 18.3 18.3 investments20 in20 nuclear power 15 15 generation15 capacity15 10 10 10 10 5 5 5 5 0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation

Total differencetrillion USD trillion USD 120 120 110 110 120 120 95 95 Overall 100 100 +15 +15100 100 trillion USD trillion USD incremental 80 80 80 80 investment 60 60 60 60 needs are 40 40 40 40 USD 15 trillion. 20 20 20 20

0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation

Source: IRENA analysis.

25 INVESTMENTS NEEDED TO HOLD THE LINE AT 1.5°C

Figure 2.3: Cumulative investment in renewable power generation capacity until 2050, by technology

USD trillion

Biomass (incl.

Onshore wind Solar PV (utility and rooftop) Oshore wind biogas) pumped) (excl. Hydropower Others* CSP Geothermal 7.0 6.7 3.0 2.0 1.5 0.9 USD 22.5 trillion 0.8 ENERGY TRANSFORMATION 0.6

Source: IRENA analysis. Note: Others include marine, floating solar and hybrid renewable capacities. CSP = concentrated solar power; PV = photovoltaic.

Beyond generation, additional investment will be Globally, investment in maintaining, extending and needed to ensure adequate and flexible operation improving electricity networks dipped by 1% in 2018 of an expanded power system capable of reliably from 2017, with overall investments of USD 293 billion absorbing growing volumes of variable renewable (IEA, 2019a). Meanwhile, investment in utility-scale energy. The components include transmission and behind-the-meter battery storage reached a and distribution networks, smart meters, pumped record level of over USD 4 billion in 2018, 45% higher hydropower, decentralised and utility-scale stationary than 2017 levels (IEA, 2019a). battery storage (coupled mainly with decentralised PV systems), and retrofitted and new power generation capacity to ensure generation adequacy. Additional investments These investments approach USD 13 trillion in the will be required for energy Energy Transformation case, a third higher than infrastructure the USD 9 trillion under Current Plans. Nearly two- thirds of the increment will be needed to extend and enhance transmission and distribution grids, with the Under the Energy Transformation scenario, total remaining third going to support measures to ensure installed capacity of wind energy would rise from the adequacy and flexibility of the power system as around 564 GW in 2018 to more than 6 000 GW in well as the installation of smart meters (Figure 2.4). In 2050. Solar PV would rise from and 480 GW to 8 annual terms, nearly USD 374 billion/year is required 500 GW during the same period. The scale-up would over the period to 2050 to ensure safe, reliable, and absorb more than 60% of the overall investment in flexible operation of a power system fuelled primarily renewables-based power generation capacity in the by renewables. decades leading to 2050.

26 INVESTMENTS NEEDED TO HOLD THE LINE AT 1.5°C

Figure 2.4: Investments in transmission and distribution networks, energy storage, smart meters and dispatchable fossil-fuel power capacity until 2050

USD trillion/yr.

14 12.7 1.0 0.1 - 0.01 12 1.7

10 9.4 0.5 Transmission Distribution Energy Smart Dispatchable 8 grid grid storage meters capacity

0 CURRENT PLANS ENERGY TRANSFORMATION

Source: IRENA analysis

The costs of variable renewable energy are tied to the The targets of those investments include quick-ramping inherent characteristics of the energy sources and the thermal generation backups, pumped hydropower, challenges of integrating them into power systems. reinforced transmission and distribution grids, Variability, uncertainty and location-dependency all digital control equipment, vastly expanded storage make it more difficult for systems to balance real- capacity (stationary, seasonal, and directed toward time supply and demand and to recover quickly and electric vehicles), and flexible demand (demand-side efficiently from unexpected events. A power system management, heat pumps and electric boilers). that can effectively perform the above functions is Local circumstances determine the capital expenditure said to possess sufficient flexibility (IRENA, 2019d). required to transform any given power system. Experience shows that integrating very high shares Similarly, the requirement for investments in enabling of variable renewable energy is already technically technologies depends on existing levels of flexibility, possible. The constraint on deployment and higher anticipated growth in demand (owing to economic penetration is mainly economic (IRENA, 2019d). growth and electrification), the amplitude of seasonal As the share of variable renewable energy grows, fluctuations (particularly pertinent for electric heat), significant investments are also needed in equipment new construction vs. retrofitting (enhancing flexibility and systems to enhance grid flexibility. is less costly in a greenfield investment), and consumer preferences (e.g., for electric vehicles).

27 INVESTMENTS NEEDED TO HOLD THE LINE AT 1.5°C

2.2. Investments in energy efficiency The major share of efficiency measures would be directed at cars and similar passenger vehicles (87%), For the world to set itself on a path toward meeting followed by other passenger modes (buses, railways, long-term decarbonisation targets, investments in and two- and three-wheelers). Efficiency measures energy efficiency will have to be scaled up to USD 1.1 include the modal shift from passenger cars to public trillion per year, almost five times higher than their transport (electric railways or trams) and, in case of 2018 level (USD 0.240 trillion6) (Figure 2.5). Compared freight, moving from trucks to electric railways. Such to fossil fuels, most types of renewables inherently shifts can help greatly to decarbonise transport in entail lower energy losses when converted into useful many countries while also helping to reduce fuel costs. energy services. Renewables thereby reinforce the benefits of energy efficiency measures that reduce The remainder would pay for efficiency measures in demand. This effect may be further amplified as larger marine and aviation applications in heavy- and light- shares of transport, heating and other end-uses come duty vehicles. to be electrified (IRENA, 2019e). In addition to USD 2.5 trillion total investments in renewable heating, fuels and direct uses, nearly USD 2 trillion is needed in the Energy Transformation case until 2050 for biofuel production to decarbonise transport, especially aviation and shipping.

Achieving 1.5°C requires quintupling investment in energy efficiency measures

6 www.iea.org/wei2019/end-use/.

Figure 2.5: Average annual investments in energy efficiency measures through 2050

USD billion/yr. Historical Projected 1 200 1 100

1 000 850 800 >5x 600

400 240 200

2018 2016 – 2050 2016 – 2050 CURRENT PLANS ENERGY TRANSFORMATION IRENA analysis Note: 2018 data based on IEA (2019a) and data on IRENA estimates.

28 INVESTMENTS NEEDED TO HOLD THE LINE AT 1.5°C

The Energy Transformation case calls for a quadrupling of 2.3. Investments in electrification and investment in the electrification direct uses of heat and transport Significant electrification in end-use sectors is critical for decarbonising energy. The Energy Transformation Additional investments would also be needed in scenario requires a cumulative investment of battery factories to build battery packs for electric USD 2.5 trillion in direct end uses and heat applications vehicles. The largest incremental investment needs through 2050, plus an additional USD 2 trillion to are concentrated in charging infrastructure. produce biofuels for use primarily in aviation and Electrification of heat. Rising demand for heat shipping. in low-temperature regions of the world requires By sector, transport requires the most significant alternative technology options to replace existing transformation, but renewable heating and cooling fossil-fuel systems. Heat pumps offer a low-carbon solutions for buildings, urban development projects, technology solution for heat demand in some end- and industries are also critical. Electrolyser capacity use applications. They are now an attractive option in also would need to grow substantially. The next Europe and are expected to gain momentum in other paragraphs and Figure 2.6 expand on these points. regions. Under the Energy Transformation scenario, Electrification in transport. To decarbonise by 2050, the number of heat pumps used in the buildings and fossil fuel emissions from the transport sector must industry sectors would increase to over 300 million, be significantly reduced, most notably by replacing ten times the number in operation today. This would conventional vehicles with electric vehicles. Under require annual investments of USD 76 billion. the Energy Transformation scenario, the number of electric vehicles would exceed 1 billion by 2050. This will require yearly Solar thermal technology will meet investments of around USD 298 billion more than half of demand for direct heat in charging infrastructure for electric in industry and buildings under the vehicles and for the electrification of Energy Transformation scenario railways (Figure 2.6).

Figure 2.6: Average annual investments to electrify heat and transport through 2050

USD billion/yr.

Electrolysers for Hydrogen 3 16 CURRENT PLANS ENERGY TRANSFORMATION

Electriﬁcation of heat 23 76

Electriﬁcation in transport 73 298

0 50 100 150 200 250 300 350

Source: IRENA analysis

29 INVESTMENTS NEEDED TO HOLD THE LINE AT 1.5°C

More than two-thirds would be deployed in buildings under USD 73 billion per year over the period to 2050. and the rest in industry. More than half of the investments would be needed Hydrogen. The Energy Transformation case specifies for rapid deployment of solar thermal technologies that by 2050 nearly 19 EJ of global energy demand in industry and buildings, followed by a reasonable could be supplied by renewable hydrogen – that is, amount (14%) to be invested in the use of biomass in hydrogen produced from renewable sources (IRENA, industrial heat processes (Figure 2.7). forthcoming). To achieve this, almost USD 16 billion in The Energy Transformation case also contemplates average annual investment would be needed through some investment in deployment of carbon capture 2050 for the deployment of nearly 1 TW of electrolyser and storage, along with improvements in industrial capacity (alkaline and polymer electrolyte membrane). materials and processes, valued at a total of USD 0.4 Overall, to achieve the goals of the Energy trillion from now through 2050. Transformation scenario, investments in renewable heating, fuels and direct uses would need to triple from around USD 25 billion in 2018 (IEA, 2019a) to just

Investment levels around the world will vary widely

Figure 2.7: Cumulative renewable energy investments needed for direct end-uses and heat applications until 2050

9% 4% 2.5 trillion USD ENERGY TRANSFORMATION 35% 14%

Solar thermal - industry Solar thermal - buildings 5% Geothermal - industry Geothermal - buildings Modern biomass - buildings 2% Biomass - industry 28% Biomass and biogas - district heating 3% Others (incl. geothermal) - district heating

Source: IRENA analysis.

30 INVESTMENTS NEEDED TO HOLD THE LINE AT 1.5°C

2.4. Breakdown of investment by region above 70%. In contrast, the Middle East and North Africa (MENA) region will have the lowest share, at The levels of investment in renewable energy needed just 26%. to implement the Energy Transformation scenario vary greatly by region and are not necessarily correlated The highest level of average annual clean energy with current shares of renewable energy, owing to investments over the period to 2050 will be seen the size of the energy systems, different resource in East Asia, at USD 763 billion, followed by North endowments and differing starting points. The highest America, at USD 487 billion (Figure 2.8 and Table shares of renewable energy in primary energy supply 2.1). Sub Saharan Africa and Oceania will have the in 2050 will be reached in sub-Saharan Africa and lowest average annual investments in clean energy Oceania, with levels far above 80%, followed by Latin technology deployments, at USD 105 billion and USD America and the European Union (EU), with levels 34 billion, respectively.

Figure 2.8: Annual clean energy investments for Energy Transformation by region through 2050

USD billion/yr. 2 667 487 323 763 165 North European Rest of America Union Europe

East 376 Asia

148 Middle East and North Rest of Africa Asia 118 105 141 Latin Sub-Saharan South-east 34 America Africa Asia Oceania

Global Renewables Energy e ciency Electriﬁcation of Power grids and Others heat and transport energy ﬂexibility

Disclaimer: Boundaries and names shown on this map IRENA analysis. do not imply any official endorsement or acceptance by IRENA Note: Others include electrolysers for hydrogen production, biofuel production and CCS in industry and material improvements.

East Asia and North America will require almost 50% of the total energy investment in the Energy Transformation case due to increasing energy demand.

31 INVESTMENTS NEEDED TO HOLD THE LINE AT 1.5°C

Table 2.2: Average annual investments in clean energy through 2050, by region and by technology

Share (%) of each region’s annual investment total Annual Renewables Energy Electrification Power grids Othersa investments (power and efficiency of end-uses and flexibility (USD billion/year) end-use)

East Asia 763 35 30 18 14 3 North America 487 24 45 15 13 2 Rest of Asia 376 25 42 14 14 5 European Union 323 25 45 10 17 2 Rest of Europe 165 15 57 18 4 6

Middle East 148 12 65 4 16 4 and North Africa Southeast Asia 141 32 40 8 15 5

Latin America 118 26 50 8 13 3 and the Caribbean

Sub-Saharan 105 41 24 15 17 3 Africa Oceania 34 37 39 8 12 4

IRENA analysis. a. Electrolysers for hydrogen production, biofuel supply, and carbon capture and storage for use in industry and material improvements.

East Asia comprises China, Japan, Mongolia, Democratic People’s Republic of Korea, Republic of Korea. North America comprises Canada, Mexico, United States of America. Rest of Asia comprises Afghanistan, Armenia, Azerbaijan, Bangladesh, Bhutan, India, Kazakhstan, Kyrgyzstan, Maldives, Nepal, Pakistan, Sri Lanka, Tajikistan, Turkey, Turkmenistan, Uzbekistan. European Union comprises all EU member states. Rest of Europe comprises Albania, Andorra, Belarus, Bosnia and Herzegovina, Iceland, Lichtenstein, Monaco, Montenegro, North Macedonia, Norway, Republic of Moldova, Russian Federation, Serbia, Switzerland, Ukraine. Middle East and North Africa comprises Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates, Yemen. Southeast Asia comprises Brunei Darussalam, Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam. Latin America and the Caribbean comprises Antigua and Barbuda, Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Nicaragua, Panama, Paraguay, Peru, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, Uruguay, Venezuela. Sub-Saharan Africa comprises Angola, Benin, Botswana, Burkina Faso, Burundi, Cabo Verde, Cameroon, Central African Republic, Chad, Comoros, Congo, Côte d’Ivoire, Democratic Republic of Congo, Equatorial Guinea, Eritrea, Eswatini, Ethiopia, Gabon, Gambia, Ghana, Guinea, Guinea Bissau, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, Sao Tome and Principe, Senegal, Seychelles, Sierra Leone, Somalia, South Africa, Togo, Uganda, United Republic of Tanzania, Zambia, Zimbabwe. Oceania comprises Australia, Fiji, Micronesia, New Zealand, Papua New Guinea, Samoa, Solomon Islands, Vanuatu.

Disclaimer: Boundaries and names shown on this map do not imply any official endorsement or acceptance by IRENA 32 INVESTMENTS NEEDED TO HOLD THE LINE AT 1.5°C

2.5. Shifting investment The avoided fossil fuel investments offset more than half of the USD 36 trillion required for investments To stay below the 1.5°C limit recommended by the in renewable energy technologies under the Energy IPCC, investments of nearly USD 18.6 trillion will Transformation scenario, bringing the net incremental have to be switched from fossil fuels to low-carbon investment of that scenario down to USD 15 trillion technologies between now and 2050. The necessary over Current Plans. Reductions in subsidies under the switch would reduce annual fossil fuel investments to Energy Transformation scenario far-reaching positive USD 547 billion – about half of what was invested by externalities (discussed later in this report) ensure the fossil fuel industry in 2017 (IEA, 2018). Most (89%) that the benefits gained would clearly outweigh the of the reductions would be made in upstream supply residual investment cost. (Figure 2.9). Oil would account for almost 64% of the cumulative avoided fossil fuel upstream investments, with natural gas accounting for 33% and coal for 4%. Cumulative investments in fossil fuel power plants would be reduced to USD 2.6 trillion through 2050, half of the amount projected under Current Plans (USD 5 trillion). Most of the remaining investments would be needed for refurbishing existing thermal The Energy Transformation scenario power plants, while a small amount would be invested would avoid trillions in fossil fuel for already- commissioned plants nearing completion. investments, freeing the funds for investment in clean energy

Figure 2.9: Cumulative fossil-fuel investments for extraction, processing and power generation until 2050: Current Plans vs. Energy Transformation

USD trillion Avoided investments 40 Power generation: 35 5 Oil: –0.03 Gas: –0.5 30 Coal: –1.5 Extraction and processing: 25 Oil: –11 > -50% Gas: –5 20 Coal: –0.6 37 3 15 –18 trillion USD 10 19 32 16 Power generation 5 Extraction and processing 0

2016 – 2050 2016 – 2050 CURRENT PLANS ENERGY TRANSFORMATION

Source: IRENA analysis.

33 ACTIONS TO ACCELERATE THE ENERGY TRANSFORMATION

Figure 2.10: Immediate actions needed at the sector level to transform the global energy system

Power Transport Industry Buildings

ACCELERATE RENEWABLE CAPACITY ADDITIONS TO GENERATE REDUCE TRANSPORT VOLUME AND CONGESTION REDUCE ENERGY CONSUMPTION IN INDUSTRIES REDUCE ENERGY CONSUMPTION IN BUILDINGS ADEQUATE POWER WITH LOW-CARBON TECHNOLOGIES 1) Adopt advanced digital communication technologies to 1) Promote circular economy (material recycling, waste 1) Establish or enhance-energy efficient building codes and 1) Identify and map renewable energy resources and develop a improve urban transport planning and services (e.g., re-routing management, improvements in materials efficiency, and standards (including for appliances and equipment). portfolio of financeable projects for the medium to long term. to reduce traffic congestion). structural changes such as reuse and recycling). 2) Adopt retrofitting and renovation programmes, including financing 2) Construct no new coal power plants and plan and implement 2) Promote mobility services (e.g., automonous driving, vehicle- 2) Establish energy efficiency standards and ramp up actual schemes. an end-of-life phase-out of coal capacities. sharing). efficiency levels. 3) Incentivise retrofits and adjust construction codes in cities and states. 3) Accelerate the shift from passenger cars to public transport (electric railways, trams or buses). 4) Combine energy efficiency and renewable energy measures (e.g., public policies to integrate these technologies in renovations 4) Deploy low-emissions city trucks. of public buildings).

SUPPORT DISTRIBUTED ENERGY RESOURCE (DER) DEPLOYMENT PRIORITISE BIOFUELS IN ROAD FREIGHT, AVIATION AND ACCELERATE LOW-CARBON TECHNOLOGY DEPLOYMENT SCALE UP THE RENEWABLE SHARE IN THE BUILDINGS SECTOR 1) Incentivise energy consumers to become prosumers. SHIPPING FOR INDUSTRIAL PROCESS HEATING 1) Promote low-carbon heating technologies (e.g., heat pumps, solar 1) Introduce specific mandates for advanced biofuels, 1) Remove existing barriers and Incentivise low-carbon heating heating, modern bioenergy for heating and cooling). 2) Support regulatory and pricing policies, including rights to accompanied by direct financial incentives and financial de- methods (e.g., solar thermal heating, modern bioenergy and generate and sell electricity, tariff regulation and grid-arrival risking measures. heat pumps). 2) Apply these renewable energy technologies through district policies. heating. 2) Adopt supporting policies to scale up sustainable production 2) Support emerging biomass and hydrogen technologies. 3) Enable energy aggregators to foster use of DERs. of first- and second-generation biofuels. Replace fossil fuel-based feedstocks and process heat 3) Phase out traditional biomass as a cooking fuel and replace it with 3) Eliminate fossil-fuel subsidies and implement carbon and (e.g., iron and steel subsectors, ammonia production) with clean and efficient cookstoves (biogas, modern solid biomass, energy taxes to increase the competitiveness of renewable- renewable-based. electricity). fuelled shipping and aviation.

ElectricityElectricity generation generation (TWh/yr) (TWh/yr) PowerPower FinalFinal energy energy consumption consumption (EJ/yr) (EJ/yr) TransportTransport

6060 000 000 8686%% 140140 RenewablesRenewables 33%% RenewablesRenewables 5050 000 000 120120(incl.(incl. electricity) electricity) RE-ElectriﬁcationRE-Electriﬁcation • Battery • Battery electric electric vehiclesvehicles • Hydrogen • Hydrogen in fuelin fuel cells cells 5757%% 100100 RenewablesRenewables 4040 000 000 for forheavy heavy freight freight modes modes GenerationGeneration (incl.(incl. electricity) electricity) • Wind • Solar • Biomass • Wind • Solar • Biomass 8080 • Hydropower• Hydropower • Others* • Others* RenewablesRenewables (direct-uses) (direct-uses) 3030 000 000 2424%% • Biofuels• Biofuels for forroad, road, aviation aviation and and Renewables marine marine transport transport Renewables InfrastructureInfrastructure and and operation operation 6060 • Power• Power grids grids extension extension 2020 000 000 • Reinforcement• Reinforcement of existingof existing lines lines EnergyEnergy eciency eciency • Enhanced• Enhanced equipment equipment deployment deployment 4040 • Improvements• Improvements in vehiclein vehicle fuel fuel economy economy • Electricity• Electricity storage,• storage,• Smart Smart meters. meters. • Modal• Modal shift shift to publicto public transport transport • Enhanced• Enhanced mobility mobility services services 1010 000 000 2020

0 0 0 0 TodayToday TodayToday 2052050 0 2052050 0 ENERGYENERGY TRANS. TRANS. ENERGYENERGY TRANS. TRANS.

Source: IRENA (2019b). Source: IRENA (2019b). Note: The base year of the analysis is 2016. "Energy Transformation 2050" refers to IRENA's REmap case (www.irena.org/remap).

FinalFinal energy energy consumption consumption (EJ/yr) (EJ/yr) IndustryIndustry FinalFinal energy energy consumption consumption (EJ/yr) (EJ/yr) BuildingsBuildings 34 180180 140140 3636%% 6363%% RenewablesRenewables 1414%% RenewablesRenewables (incl.(incl. electricity) electricity) RenewablesRenewables (incl.(incl. electricity) electricity) 120120 % 150150(incl.(incl. electricity) electricity) 8181% RenewablesRenewables (incl.(incl. electricity) electricity) RE-ElectrificationRE-Electrification • Heat • Heat pumps pumps 100100 RE-ElectrificationRE-Electrification • Heat • Heat pumps pumps 120120 • Hydrogen• Hydrogen for forindustrial industrial heat heat and and process process • Rooftop• Rooftop Solar Solar PV PV• Blending • Blending hydrogen hydrogen • Direct• Direct use use of electricityof electricity for forindustrial industrial in naturalin natural gas gas for forheating heating heating heating processes processes 8080 • Electricity• Electricity direct-use direct-use for forspace space heat heat • Distributed• Distributed Solar Solar PV PVand and small small scale scale wind wind and water heating, and cooking 9090 and water heating, and cooking RenewablesRenewables (direct-uses) (direct-uses) 6060 Solar thermal • Solar• Solar heating heating • Biomass • Biomass for forprocess process heat heat RenewablesRenewables (direct-uses) (direct-uses) • • Solar thermal for space and water heating • Biomass • Biomass• Biomass feedstocks feedstocks for space and water heating • Biomass 6060 for forheating heating • Biogas • Biogas for forcooking cooking 4040 Energy eciency • Improvements in Energy eciency • Improvements in EnergyEnergy eciency eciency • Retrofits • Retrofits process • Re-use and recycling 30 process • Re-use and recycling • Thermal• Thermal envelope envelope • High • High eciency eciency 30 • Improvements in materials eciency • Improvements in materials eciency 2020 appliances,•appliances,• Smart Smart homes homes • Ecient• Ecient motors motors 0 0 0 0 TodayToday TodayToday 2052050 0 2052050 0 ENERGYENERGY TRANS. TRANS. ENERGYENERGY TRANS. TRANS. ACTIONS TO ACCELERATE THE ENERGY TRANSFORMATION

= Renewable electricity; = Renewables (Direct-use and DH); = Non-renewables

Power Transport Industry Buildings

UPDATE GRID PLANNING TO ACCOMMODATE RISING SHARES OF ACCELERATE THE SHIFT TO ELECTRIC MOBILITY ENABLE CORPORATE SOURCING OF RENEWABLES SUPPORT AND FOSTER DER DEPLOYMENT VARIABLE RENEWABLE (SOLAR AND WIND) ENERGY 1) Set minimum standards for vehicle emissions. 2) Give electric 1) Support a credible and transparent certification 1) Remove barriers that prevent prosumers from actively helping 1) Develop a flexible power system (with flexible supply, storage, vehicles (EVs) priority in city access. and tracking system for corporate renewable energy use. to transform the energy system. demand response, power-to-X, electric vehicles, digital and ICT 2) Incentivise the development of charging infrastructure. 2) Consider an energy market structure that allows for direct 2) Promote community ownership models and innovative financing technologies, etc). ElectricityElectricity generation generation (TWh/yr) (TWh/yr) PowerPower Final energyFinal energy consumption consumption (EJ/yr) (EJ/yr) TransportTransport 3) Strengthen links between the power and transport sectors trade between companies of all sizes and renewable energy schemes. 2) Update grid codes. with integrated planning and policy designs (vehicle-to-grid 60 000developers – e.g. through power purchase agreements %(PPAs).% 60 000 8686 3)140 Accelerate140 the roll-out of smart meters. 3) Deploy micro-grids to improve resilience and expand energy services). RenewablesRenewables % % 3) Work with utilities and other electricity suppliers to provide 3 3 access with renewable sources. 4) CapitaliseRenewablesRenewables on smart-home and digitalisation schemes to allow 50 00050 000green corporate procurement options. 120 (incl.120 electricity)(incl. electricity) 4) Deploy super-grids to interconnect regions. demand management and strengthen grid services. 4) Empower companies to invest directly in self-generation. RE-ElectriﬁcationRE-Electriﬁcation • Battery • Batteryelectric electric vehiclesvehicles • Hydrogen • Hydrogen in fuel cells in fuel cells 57%57% 5) Deploy cost-reflective tariff structures by properly readjusting the 100 100 RenewablesRenewables 40 00040 000 for heavyfor freight heavy modesfreight modes balance between volumetric charges (USD/kWh), fixed charges (e.g., GenerationGeneration (incl. electricity)(incl. electricity) USD/metre-month) and, where applicable, demand charges (USD/kW). • Wind • SolarWind •• BiomassSolar • Biomass 80 80 • Hydropower• Hydropower • Others* • Others* RenewablesRenewables (direct-uses) (direct-uses) 30 00030 00024%24% • Biofuels• Biofuels for road, for aviation road, aviation and and marine transportmarine transport SUPPORT DISTRIBUTED ENERGY RESOURCE (DER) DEPLOYMENT PRIORITISE BIOFUELS IN ROAD FREIGHT, AVIATION AND ACCELERATERenewablesRenewables LOW-CARBONInfrastructureInfrastructure andTECHNOLOGY operation and operation DEPLOYMENT SCALE60 60 UP THE RENEWABLE SHARE IN THE BUILDINGS SECTOR • Power• grids Power extension grids extension 1) Incentivise energy consumers to become prosumers. SHIPPING FOR INDUSTRIAL PROCESS HEATING 1) Promote low-carbon heatingEnergy technologies eciency (e.g., heat pumps, solar 20 00020 000 • Reinforcement• Reinforcement of existing of existing lines lines Energy eciency 1) Introduce specific mandates for advanced biofuels, 1) Remove existing •barriers Enhanced• Enhanced equipmentand Incentivise equipment deployment deployment low-carbon heating 40heating,40 modern bioenergy• Improvements• forImprovements heating in vehicle in fuelandvehicle economy cooling). fuel economy 2) Support regulatory and pricing policies, including rights to • Modal •shift Modal to publicshift to transport public transport accompanied by direct financial incentives and financial de- methods (e.g., solar• Electricity thermal• Electricity storage,• heating, storage,• Smart meters. Smartmodern meters. bioenergy and • Enhanced• Enhanced mobility mobility services services generate and sell electricity, tariff regulation and grid-arrival risking measures. 10 00010 000heat pumps). 2) Apply these renewable energy technologies through district policies. 20heating.20 2) Adopt supporting policies to scale up sustainable production 2) Support emerging biomass and hydrogen technologies. 3) Enable energy aggregators to foster use of DERs. 3) Phase out traditional biomass as a cooking fuel and replace it with of first- and second-generation biofuels. 0 Replace0 fossil fuel-based feedstocks and process heat 0 0 Today Today clean Todayand efficientToday cookstoves (biogas, modern solid biomass, 3) Eliminate fossil-fuel subsidies and implement carbon and (e.g., iron and steel subsectors, ammonia production)205 with0 205 0 2050 2050 electricity). energy taxes to increase the competitiveness of renewable- renewable-based. ENERGYENERGY TRANS. TRANS. ENERGYENERGY TRANS. TRANS. fuelled shipping and aviation.

Final energyFinal energy consumption consumption (EJ/yr) (EJ/yr) IndustryIndustry Final energyFinal energy consumption consumption (EJ/yr) (EJ/yr) BuildingsBuildings 180 180 140 14036%36% 63%63% RenewablesRenewables 14%14% RenewablesRenewables (incl. electricity)(incl. electricity) RenewablesRenewables (incl. electricity)(incl. electricity) 120 120 150 (incl.150 electricity)(incl. electricity) 81%81% RenewablesRenewables (incl. electricity)(incl. electricity) RE-ElectrificationRE-Electrification • Heat pumps • Heat pumps 100 100 RE-ElectrificationRE-Electrification • Heat pumps • Heat pumps 120 120 • Hydrogen• Hydrogen for industrial for industrial heat and heat process and process • Rooftop• Rooftop Solar PV Solar • Blending PV • Blending hydrogen hydrogen • Direct •use Direct of electricity use of electricity for industrial for industrial in naturalin gasnatural for heatinggas for heating heating heatingprocesses processes 80 80 • Electricity• Electricity direct-use direct-use for space for heat space heat • Distributed• Distributed Solar PV Solar and smallPV and scale small wind scale wind 90 90 and waterand heating, water heating, and cooking and cooking RenewablesRenewables (direct-uses) (direct-uses) 60 60 • Solar heating• Solar heating• Biomass • Biomass for process for processheat heat RenewablesRenewables (direct-uses) (direct-uses) • Solar thermal• Solar thermal • Biomass• Biomass feedstocks feedstocks for spacefor and space water and heating water heating• Biomass • Biomass 60 60 for heatingfor heating• Biogas • forBiogas cooking for cooking 40 40 Energy eciency • Improvements in Energy eciency • Improvements in Energy Energyeciency eciency • Retrofits • Retrofits process • Re-use and recycling 30 30 process • Re-use and recycling • Thermal• Thermal envelope envelope • High eciency • High eciency • Improvements in materials eciency • Improvements in materials eciency 20 20 appliances,•appliances,• Smart homes Smart homes • Ecient• Ecient motors motors 0 0 0 0 Today Today Today Today 2050 2050 2050 2050 ENERGYENERGY TRANS. TRANS. ENERGYENERGY TRANS. TRANS.

Source: IRENA (2019b). Source: IRENA (2019b).

35 DRIVERS OF THE ENERGY TRANSFORMATION – AND THEIR SOCIO-ECONOMIC FOOTPRINT

36 DRIVERS OF THE ENERGY TRANSFORMATION – AND THEIR SOCIO-ECONOMIC FOOTPRINT 03

ressing needs and attractive opportunities are expand access to modern energy (Figure 3.1). Each of Pdriving the ongoing energy transformation. these benefits is brought closer by the steadily falling Renewables and other low-carbon technology options costs of renewables. But investment in the energy reduce carbon emissions, deliver socio economic transformation can no longer be pursued in isolation benefits, improve energy security, create jobs and help from broader socio-economic considerations.

Figure 3.1: Needs and Opportunities

REDUCED FALLING CARBON EMISSIONS ENERGY COSTS 70% lower Renewables fully competitive

REDUCED IMPACT, GREATER ECONOMIC GAIN ENERGY JOB CREATION

USD 3-7 payo TRANSFORMATION 7 million for each by 2050 additional jobs USD 1 spent

IMPROVED FULL ENERGY ENERGY SECURITY ACCESS

-64% demand 100% energy of fossil fuels access

IRENA analysis

37 DRIVERS OF THE ENERGY TRANSFORMATION – AND THEIR SOCIO-ECONOMIC FOOTPRINT

The power and energy systems are embedded within 3.1. Global GDP and job creation that system, which in turn is embedded within the Across the world economy, GDP increases from 2019 earth and its climate. For the energy transformation to 2050 under both the Current Plans and Energy to succeed, plans and investment strategies must be Transformation scenarios, almost tripling overall based on an appreciation of how the energy system GDP and more than doubling per capita GDP. GDP interacts with the broader economy. grows more under Energy Transformation than IRENA uses an integrated macroeconomic model to under Current Plans (Figure 3.3 and Table 3.1), with a evaluate the likely socio-economic footprint created cumulative difference of USD 97.7 trillion (2015 USD) by different combinations of energy policies and between 2017 and 2050. socio-economic factors. Measuring those footprints provides a comprehensive view of the outcomes of the Energy Transformation scenario, showing likely effects on GDP, employment and human welfare Global GDP would grow more (Figure 3.2). Outcomes are analysed in terms of with Energy Transformation various drivers, described in the Annex, that interact than under Current Plans with region-specific socio-economic systems, leading to diverging outcomes. IRENA’s model disaggregates the evolution of GDP into four main drivers: Investment has a positive effect on GDP in the trade short term and then fades away. This effect is due consumer spending in response to tax changes primarily to front-loaded investment in renewable consumer spending in response to indirect and energy generation capacity, energy efficiency and induced effects energy system flexibility to support the energy investment transformation. Trade’s effect is slightly positive on The evolution of employment is disaggregated into GDP over the entire period, reflecting the fact that three main drivers: global trade must always balance in nominal terms. trade Consumer spending in response to tax rate changes is consumer spending (in response to tax rates and the dominant driver of GDP gains between 2022 and indirect and induced effects) 2050. This driver captures the impact of changes in investment government income brought about by carbon taxes,

Figure 3.2: The energy transformation and its socio-economic footprint

Energy Transformation roadmap GDP Socio-economic Employment Energy-economy- footprint Socio-economic environment Welfare system outlook model

Based on IRENA, 2018b. Note: GDP = gross domestic product.

38 DRIVERS OF THE ENERGY TRANSFORMATION – AND THEIR SOCIO-ECONOMIC FOOTPRINT

Figure 3.3: Global GDP, trade, consumer spending and investment differences (%) between Current Plans and Energy Transformation, 2019–2050

% di erence on GDP from Current Plans 3.0 2.5%

2.5 Change in GDP

Changes in trade 2.0 Changes in consumer spending due to tax 1.5 rate changes

Changes in 1.0 investment Changes in consumer 0.5 spending due to indirect and induced e ects 0.0

-0.5 2020 2025 2030 2035 2040 2045 2050

Based on IRENA, 2019b. Note: GDP = gross domestic product.

fossil fuel phase-outs, changes in fossil fuel royalties effects. Increased carbon taxation can trigger price and other taxes (Annex). Carbon taxes and related increases in energy and other consumption products government revenue-balancing policies (explained across the economy. The population in the lower in the Annex) are the main variables responsible for quintile of income may bear a disproportionate share the GDP impact of this driver. The footprint analysis of of this burden (see Annex). Hence, without policies the Energy Transformation case assumes that carbon to distribute the burden, carbon taxes can increase taxes are aligned with a 1.5°C limit. inequality and hinder energy transformation.7 The positive effects of increased carbon taxation Across the economy, jobs increase 17% in 2050 over on GDP can mask other, negative socio-economic 2017 in both scenarios, while population increases by

Table 3.1: Global GDP under Energy Transformation and Current Plans scenarios

Scenario CAGR (2017 to 2050) 2050 to 2017 ratio

Population Both 0.67% 1.25 Current Plans 3.17% 2.80 GDP Energy Transformation 3.25% 2.87 Current Plans 2.49% 2.25 GDP per capita Energy Transformation 2.56% 2.30

IRENA analysis. Note: Two decimal points are used to contrast the two scenarios. GDP = gross domestic product.

39 DRIVERS OF THE ENERGY TRANSFORMATION – AND THEIR SOCIO-ECONOMIC FOOTPRINT

25% in the same period. However, employment grows indicator, initially because of changes in net trade in slightly faster in the Energy Transformation case than fuels, but reinforced after 2035 by changes in non- under Current Plans, with 0.15% higher employment in energy trade. 2050 (see Table 3.2, Figure 3.4 and Annex). The energy sector plays the dual role of fuelling The difference in global economy-wide employment economy-wide development and supporting many between the Energy Transformation and Current Plans jobs. Jobs in the sector increase under both the Energy scenarios is illustrated in Figure 3.4. The investment Transformation and Current Plans scenarios (Figure driver has a positive effect on jobs in the short run, 3.5). The growth in energy sector jobs through 2050 is mirroring the front-loading of investment and the 14% higher under the Energy Transformation scenario crowding out of other sectors of the economy having than under Current Plans (Table 3.2). Decreases higher employment intensities.8 in fossil fuel jobs are significantly smaller than the The consumer spending driver is positive and increases in jobs linked to Energy Transformation dominates the impact on global employment, (renewables, energy efficiency and energy flexibility). largely owing to carbon taxation. The trade driver has a negative impact on the employment footprint Both scenarios would raise employment across the economy, with Energy Transformation holding a slight edge

Figure 3.4: Global employment difference (%) between Current Plans and Energy Transformation, 2019–2050

% dierence in employment from Current Plans 0.30 0.16%

0.25 Changes in 0.20 consumer spending, including due to tax 0.15 rates, indirect and induced eects 0.10 Change in 0.05 employment

0.00 Changes in investment -0.05 Changes in trade -0.10

-0.15 2020 2025 2030 2035 2040 2045 2050

Based on IRENA, 2019b.

7 IRENA is analysing the distributional aspects of the Energy Transformation scenario to understand how these can be addressed to improve the socio-economic impact beyond GDP. 8 A 50% crowding-out effect has been assumed for this analysis, whereby the additional investment required for the energy transformation drains investment from other sectors.

40 DRIVERS OF THE ENERGY TRANSFORMATION – AND THEIR SOCIO-ECONOMIC FOOTPRINT

The Energy Transformation scenario results in a 64% The fact that Energy Transformation causes a slight increase in renewable energy jobs by 2050, distributed increase (0.15%; 7 million jobs) in economy-wide jobs across technologies. The lower increase in energy over Current Plans, while the increase in the energy sector jobs (14%; 12.5 million jobs) than in renewable sector jobs is much higher, indicates that during the energy jobs (64%; 16.3 million jobs) is a consequence transformation jobs are being lost in other sectors of of jobs being lost in the fossil fuel industry. the economy.

Employment in the energy sector and in renewables would grow under both scenarios, but faster under Energy Transformation

Figure 3.5: Global employment in the energy sector and renewables, 2017, 2030 and 2050

Energy sector employment million jobs 120 2030 2050 100.6 99.8 100 86.1 87.2 Energy Flexibility & Grid 80 Energy Eciency 57.9 60 Renewables Fossil Fuels 40 Nuclear 20

2017 2030 2030 2050 2050 CURRENT PLANS ENERGY CURRENT PLANS ENERGY TRANSFORMATION TRANSFORMATION

Renewables employment million jobs 50 2030 2050 41.9 40 Tidal/Wave Geothermal 30 29.5 25.6 Wind 20.3 20 Hydro 12.3 Solar 10 Bioenergy

2017 2030 2030 2050 2050 CURRENT PLANS ENERGY CURRENT PLANS ENERGY TRANSFORMATION TRANSFORMATION Source: IRENA analysis.

41 DRIVERS OF THE ENERGY TRANSFORMATION – AND THEIR SOCIO-ECONOMIC FOOTPRINT

Table 3.2: Employment differences between Current Plans and Energy Transformation: Economy-wide, in the energy sector and in renewable energy

Millions of jobs Percentage 2030 2050 2030 2050

Economy-wide 7.13 6.57 0.18% 0.15% Energy sector 14.50 12.53 16.83% 14.37% Renewable energy 9.24 16.32 45.49% 63.82%

Source: IRENA analysis. Note: This table includes two decimal digits to contrast the economy-wide job results of the two scenarios.

Employment in the energy sector and in renewables grows over time under both scenarios, especially Energy Transformation. The increase in jobs in renewables outweighs the loss of fossil fuel jobs and comes hand in hand with new jobs related to energy flexibility and grid development.

Even if it causes only a slight increase in the sheer 29% of the jobs in the subset of renewable energy number of jobs, the Energy Transformation scenario technologies included in the figure, while construction brings about a very important modification of the and installation account for 47% and operation labour market structure, requiring the enactment of and maintenance (O&M) for 24%.10 Workers and comprehensive labour policies that address the many technicians account for 77.2% of the jobs associated misalignments (temporal, spatial, educational and with this subset of renewable energy technologies; sectoral) between jobs lost and jobs gained. 10.3% are experts; 9.1% are engineers 9.1%; 3.4% are Designing appropriate labour market policies will marketing and administrative personnel. (Experts require deeper knowledge of the structure of the new generally require tertiary education; engineers, jobs being created by the transformation. Figure 3.6 postgraduate qualifications.) helps fill the gap by analysing a subset of renewable energy jobs under the Energy Transformation scenario by segment of the value chain and occupational requirement.9 With respect to the value chain, ample opportunities Energy Transformation provides will exist to localise renewable energy jobs in such a way as to reinforce domestic supply chains (Figure ample opportunities to localise 3.6). Manufacturing, which is the segment of the renewable energy jobs and value chain most difficult to localise, accounts for just reinforce domestic supply chains

9 The subset of renewable energy technologies used in this figure (PV, onshore wind, offshore wind, solar water heating and geothermal) is determined by the availability of information on occupational requirements. Most of the information comes from IRENA’s series of reports (2019c, 2018b, 2017a, 2017b) on the economic leveraging of various renewable technologies (IRENA, 2019c, 2018b, 2017a, 2017b). As additional technologies are covered in forthcoming reports, the analysis will be extended to cover those technologies. 10 Localising manufacturing is much simpler for renewable energy technologies than for fossil fuel or nuclear technologies.

42 DRIVERS OF THE ENERGY TRANSFORMATION – AND THEIR SOCIO-ECONOMIC FOOTPRINT

Figure 3.6: Global employment in Energy Transformation 2050, disaggregated by technology, value segment and required skills million jobs Millions of jobs Percentage 50 2030 2050 2030 2050

40 Economy-wide 7.13 6.57 0.18% 0.15% Energy sector 14.50 12.53 16.83% 14.37% 30 Renewable energy 9.24 16.32 45.49% 63.82%

0 Source: IRENA analysis. Note: Renewable Non-hydro renewables Non-hydro renewables O&M = operation and energy jobs employment employment maintenance; by technology by value-chain segment by required occupations PV = photovoltaic. Solar PV Construction & Workers and technicians installation Solar water heaters Experts Manufacturing Onshore wind Engineers and O&M higher degrees Oshore wind Marketing and Geothermal administrative Other renewables personnel (including hydropower, bioenergy, ocean)

For the considered subset of renewable technologies, the distribution of jobs over the value chain is dominated by construction and installation (47%), while manufacturing represents 29% of the jobs. Occupational requirements are strongly dominated by workers and technicians (77% of jobs).

3.2. Regional GDP and employment Africa, North America, Oceania and sub-Saharan Africa), plus four additional countries or sub-regions The socio-economic footprint of the energy (China, the Middle Eastern member countries of the transformation in any given country or region will Organization of the Petroleum Exporting Countries, vary from the global footprint, owing to the diversity Southern Europe and the rest of Africa). of socio-economic structures and their complex interactions with the energy transformation (Figures The impact on GDP over Current Plans ranges from 3.7 and 3.8). Results are presented for ten regions (the a 9% increase to being almost neutral. Most regions/ Association of Southeast Asian Nations, East Asia, countries show a positive impact on GDP (Figure 4.7), the rest of Asia, the EU28, the rest of Europe, Latin owing largely to increased investment, trade gains, America and the Caribbean, the Middle East and North and indirect and induced effects from tax changes.

43 DRIVERS OF THE ENERGY TRANSFORMATION – AND THEIR SOCIO-ECONOMIC FOOTPRINT

Figure 3.7: Effect of Current Plans vs. Energy Transformation on GDP in selected regions and countries by 2050 (% difference) % dierence 10 +9.4%

8 +7.5%

4 +3.0% +2.5% +2.4% +2.4% G20 average 2 +1.5% +1.5% +1.2% +0.9% +0.7% Middle-East OPEC Middle-East 0

% –0.5 % –2 –0.7 China China EU 28 EU 28 East Asia East East Asia East Rest of Asia Rest –4 of Asia Rest Rest of Africa of Africa Rest Rest of Africa of Africa Rest Latin America Latin Latin America Latin Rest of Europe Rest Rest of Europe Rest South-east Asia South-east South-east Asia South-east Southern Europe Southern Europe MENA MENA Oceania Oceania Oceania Oceania Sub-Saharan Africa Sub-Saharan –6 Africa Sub-Saharan

–6.3% –8 North America (incl. Mexico) North America (incl. Mexico)

Source: IRENA analysis. Note: EU28 = Member states of the European Union; The socio-economic footprint of the GDP = gross domestic product; MENA = Middle East and North Africa; Energy Transformation scenario varies OPEC = Organization of the Petroleum Exporting Countries. across regions and countries, with some performing better than others. Most show better GDP resultsthan under Current Plans.

Energy Transformation will raise However, countries and regions with economies that GDP in most regions and countries are heavily dependent on oil exports do worse under the Energy Transformation scenario than they would over the level expected under Current Plans, because global demand for oil from Current Plans is further reduced. Employment gains (in percentage terms) are less under the Energy Transformation scenario than under Current Plans because additional demand in the global economy also pushes real wages up (Figure 3.8).

11 In general terms, employment gains are expected to be less significant than GDP gains because additional demand in the global economy also pushes up real wages. The additional wage volume can be translated into wage increases for all workers, an increase in the number of jobs, or a mix of both. Historical trends show that wage effects tend to produce smaller increases in employment than in GDP.

44 DRIVERS OF THE ENERGY TRANSFORMATION – AND THEIR SOCIO-ECONOMIC FOOTPRINT

Figure 3.8: Effect of Current Plans vs. Energy Transformation on employment in selected regions and countries by 2050 (% difference) % dierence

3.0 +2.9%

+2.4% 2.5

2.0

1.5 Employment gains may be less under the Energy Transformation +1.0% scenario than under Current Plans 1.0

+0.5% 0.5

+0.1% G20 average 0% 0% 0% 0

–0.1% –0.1% –0.2% –0.2% –0.2% –0.2% 0.5 China China EU 28 EU 28 MENA MENA Oceania Oceania Oceania East Asia Asia East East Rest of Asia of Asia Rest Rest Rest of Africa of Africa Rest Rest Latin America America Latin Latin Rest of Europe of Europe Rest Rest South-east Asia Asia South-east South-east Southern Europe Southern Europe OPEC OPEC Middle-East Middle-East Sub-Saharan Africa Africa Sub-Saharan Sub-Saharan Source: IRENA analysis Note: EU28 = Member States of the European Union; MENA = Middle East and North Africa;

North America (incl. Mexico) North America (incl. Mexico) OPEC = Organization of the Petroleum Exporting Countries.

3.3. Varying effects of the shift to Rather, it will interact continually with each country’s renewables underlying socio-economic circumstances. This has ramifications for macroeconomic stability, trade, The socio-economic footprint analysis presented in the investment, supply chains, production capacity and previous section shows that the Energy Transformation employment. As the energy transformation unfolds, path, when accompanied by appropriate policies (such policies will be needed to maximise its benefits and as carbon taxation, fossil fuel phase-out and revenue minimise economic misalignments, cushion shocks recycling) will have a positive impact on GDP and and ensure equity. jobs at the global level.11 However, this will not occur in isolation nor be confined in its effects on levels of A disaggregation of the socio-economic footprint at energy consumption or access. the regional level sheds light on how the costs and benefits of the transition will differentially impact various parts of the world.

45 DRIVERS OF THE ENERGY TRANSFORMATION – AND THEIR SOCIO-ECONOMIC FOOTPRINT

The regional differences are mainly due to: The transition will bring about a profound change in labour patterns, producing significant misalignments Countries embarking on the transition from different in all regions. These misalignments fall into four starting points; categories:

Different levels of national ambition and means of Temporal misalignments: The creation of new jobs implementation; does not necessarily take place at the same time as the loss of employment. The depths, strengths and diversity of supply chains; Spatial misalignments: New jobs are not necessarily The degree to which economies depend on the created in the same locations – communities, regions production and sale of fossil fuels. or countries – where job losses occur. These factors shape how the energy transformation Educational misalignments: The skills associated affects economies. For example, regions with a robust with vanishing jobs do not always match those industrial base, comparatively high capabilities and required by emerging jobs. diversified economies reap the most benefits, as they are able to localise segments of the value chain. In Sector misalignments: Job gains and losses may such regions, growing economic activity along the affect different sectors of the economy, given value chain triggers demand for more intermediary different supply-chain structures and diverging sets industrial inputs and services from various sectors of of inputs between rising and declining industries. the economy, creating positive feedback loops between changes in the energy system and the wider economy. These misalignments will unfold against the broader reality of structural unemployment that remains Along with stimulating demand for intermediary a critical issue for almost all countries. While the industrial inputs, greater production and supply chain energy sector as a whole sees a significant increase activity in the renewables sectors boosts consumption of jobs from the energy transformation (14% at the through induced and indirect effects, while a larger global level in 2050), economy-wide employment GDP spurs demand for new economic activities in experiences a meagre 0.16% increase compared with non-energy sectors. Thus, the shift creates sectoral Current Plans. spillovers that boost productivity and consumer expenditure, reinforcing new employment in both Comparison of the Energy Transformation scenario energy and non-energy sectors. This will not be the with the GDP footprint in the report also shows that case in other regions, most notably those dependent country performance on the jobs front is different on fossil-fuel supply chains or with weak or less from their forecasted GDP performance (compare diverse economic structures. Figures 3.7 and 3.8). That is, while some economies and regions will continue to see GDP rises, the additional demand will translate only partly into more jobs and even less into increased wages. These findings only underscore the urgency of policies to address labour market rigidities and deficiencies. They also reinforce the importance of the energy sector as a critical enabler of overall growth and development, pointing to the opportunity to devise policies to guide the indirect and induced effects of the Energy Transformation case for the maximum benefit of the rest of the economy.

12 For example, equipment manufacturing; project planning and development; engineering, procurement and construction; and O&M in the energy sector

46 04 POLICIES TO ENSURE EQUITABLE OUTCOMES POLICIES TO ENSURE EQUITABLE OUTCOMES

aximising the benefits of investment in the 4.1 Deployment policies energy transformation while minimising its M Deployment policies should steadily enhance the adjustment costs requires a wider conceptualisation share of renewables in total energy supply through of the just transition, underpinned by a commitment policies that accelerate capacity installation. This to sustainable, climate-proof development. A failure includes: to fully exploit the system-wide synergies between Push policies such as binding targets, quotas and energy and the broader economy will not only limit obligations, as well as codes and mandates. the mobilisation of the finance and investments needed to propel the transition – it will also threaten Pull policies include pricing policies, tradable macroeconomic stability. certificates and renewable energy regulations that create markets for the various technologies – these Synergising the effects of energy investments into will also be crucial to counteract and balance the the economy can help poor and vulnerable regions effects of push policies. use energy as part of a long-term growth strategy to reduce the costs of trade, create employment, Fiscal and financial measures such as tax incentives, promote efficient production, raise living standards, subsidies and grants, in addition to concessional and increase consumption of goods and services. financing for renewable energy technologies, will accelerate the uptake of renewable energy. Levelling out the regional and country-level effects of the transformation depends on a policy framework that operates on two fronts. The framework should 4.2 Enabling policies promote the deployment of renewables both to Strengthening policy connectivity and co-ordination reduce energy consumption and to increase energy between energy and the rest of the economy access. Simultaneously, it should firmly embed the will draw maximum systemic benefits from the deployment of renewables into a broader policy energy transformation. Such policies must focus on framework that makes energy a catalyst of economic, building capabilities for renewables production, use inclusive and sustainable growth. Such a just transition and application, as well as reform of the broader policy framework rests on three transformative sets institutional architecture to enable systemic effects of policies: deployment policies, enabling policies and between the energy sector and the broader economy. integration policies (Figure 4.1).13 The enabling framework links four crucial national policies: industrial policy, labour market and social protection policy, education and skills policy, and financial policy.

13 The primary source for the material in this section is IRENA, IEA and REN21, 2018.

48 POLICIES TO ENSURE EQUITABLE OUTCOMES 04

Figure 4.1: The policy framework for a just transition

System flexibility

Behavioral policies Integrating Policies Sector coupling

R&D

Deployment Push Policies

Financial policies

Pull

Enabling Industrial policies Policies

Labour market and social protection policies

Fiscal and financial Education and skills policies

Based on IRENA, IEA and REN21 (2018). Note: R&D = research and development.

Industrial policies. Industrial policies support Link industrial targets directly to labour policy to economic diversification. Leveraging and enhancing create jobs; domestic capabilities requires business incubation Promote public investment into renewable energy initiatives, supplier development programmes, sectors to create jobs and capabilities in selected support for small and medium enterprises, and areas, thereby coupling these objectives effectively; promotion of key industry clusters. As its first task, a Facilitate the creation of technical capacities and transition-enabling industrial policy should make the technology transfer in renewables; energy sector into a lead sector of the economy. By Incentivise supply chain participation in renewable doing so, governments can take a more direct role in sectors by local firms, and actively support the the following areas: creation of partnerships. Foster renewable energy technologies as strategic Labour market and social protection policies. sectors in the industrial plans; Forecasting skill needs and mapping labour Offer incentives for energy efficiency investments in market outcomes are pre-requisites for effective industry, and promote consumer awareness; interventions. Relevant policies include those that Promote renewables-based research and promote employment services (matching jobs with development strategies, as well as institutions to qualified applicants; promoting employee well-being; advance their uptake in the public and private sector; facilitating on- and off-job training; and providing Enable targeted public investment to support safety nets) and measures to facilitate labour mobility the steady deployment of renewables across all and job security. industrial sectors;

49 POLICIES TO ENSURE EQUITABLE OUTCOMES

Figure 4.2: Enabling policy components of the just transition framework

ues (gender, iss age ng , n ti ex ut u c s, Labour market Financial policies s- e 1 s t and social o c protection policies • Carbon pricing and r .) revenue recycling C Financial 3 • Public investment • Forecasting job shifts strategy • Unemployment insurance; • Sustainable ﬁnance social protection programmes initiatives Labour • Labour mobility

diu me m

market (relocation grants) • New forms of transition

cost-sharing

and social

i g w h o l protection LEVEL OF POLICY AMBITION

Industrial policies Industrial Education and 2 skills policies • Low-emission sector 4 focus Education • STEM education; • Regional economic and skills on-the-job vocational training development / a • Skills demand and diversiﬁcation n s supply matching • Incentives, low-cost d a • Re-skilling loans, business e a r • Skills transfer from abroad incubation and clusters lig a • Domestic supply chain n y • University-industry m lic collaboration development en po t of dierent

Broadening the Policy Framework to ensure a just and inclusive transition

IRENA analysis. Note: STEM = science, technology, engineering and mathematics.

Income stability for workers displaced during the Education and skills policies. Capitalising on the job transition is essential, along with policy incentives opportunities offered by the transformation calls for for employers to retain (and train) workers. Flexible, a strong focus on education in science, technology, longer-term employment contracts, unemployment engineering and mathematics (STEM) education insurance, and programs that target affected workers that can help build/augment technical capacity and proactively through employment transition promote technological learning and know-how.14 These skills employee stability and welfare with employer needs and education programs should be introduced at are some possible measures to promote job stability universities and as short-term and certificate courses and employee welfare in a manner consistent with the that help workers gain additional skills. Specialised needs of employers. Finally, social protection measures training could be offered in parallel, in collaboration lighten the load of the weak and the vulnerable, with universities or research labs, to provide including women and marginalised communities, specialised opportunities. to ensure that the impact of the transformation is equitably distributed.

14 STEM education emphasises the redesign of curriculum with a strong focus on the four disciplines and promotes the idea of stronger inter- disciplinary and applied approaches to education and training.

50 POLICIES TO ENSURE EQUITABLE OUTCOMES

University-industry co-operation on renewables could 4.3 Integration policies achieve several goals at once: knowledge incubation Integrating policies such as national infrastructure, and a focus on industry-relevant work in public sector coupling, or R&D policies, promote planning research, labour mobility for scientists and researchers, and co-ordination. Integrating measures, meanwhile, increased scientific attention to local production and enhance system flexibility as the share of variable a stronger focus on technical aspects of production renewables rises (IRENA, IEA and REN21, 2018). Such – all of which will strengthen the local supply chain policy integration should include: in renewable energy sectors. Governments should also promote collaboration and technology-transfer Infrastructure policies. National policies should opportunities from foreign suppliers as part of a long- promote energy transformation planning as part term skill-building strategy. of a wider infrastructure development, thereby Finance policies. None of these tasks can be achieved integrating renewables as a core strategy of infra- without adequate funding. In addition to private sector structure expansion. funds, governments will need to mobilise significant Policies for sector coupling. Examples include revenue streams through carbon pricing and other making of electronics with energy efficiency – measures, including green bonds, and to devise with the dual role of reinforcing capabilities and revenue recycling schemes to ensure a just transition. generating demand for renewable energy products. Revenues can support strategic investments to build R&D policies. These are essential for cross-sectoral new infrastructure and reallocate and recycle budgets integration and broader application of renewable in a way that benefits education, health care and energy technologies across the economy. other sectors. Carbon taxation revenues can be used Policy co-ordination, planning and coherence in these to foster new employment creation and to limit the three areas will remain a challenge because they entail financial burdens of carbon pricing on low-income families and small businesses. the integration of the energy transformation with countries’ economic ambitions and social outcomes, The choice between revenue recycling, reducing non- such as employment, welfare, inclusion and overall energy taxes and other options depends on each prosperity. country’s needs and circumstances. Many countries without robust economic structures will face additional Governments will be challenged to combine these challenges in mobilising the financial investments for policies and measures in line with the economic and the transition. In these countries, there may be a need social contexts of their country and region. Above all, to deploy programs to enlarge the fiscal space and to policy-making needs to be cross-cutting and coherent, foster sector diversification to finance the transition strategic and ambitious to secure a prosperous, process in the medium and long term. inclusive and climate-safe future for all.

51 REFERENCES I ABBREVIATIONS

REFERENCES ABBREVIATIONS

BNEF (2019), Clean Energy Investment Trends 2018, Bloomberg New BNEF Bloomberg New Energy Finance Energy Finance (BNEF). CCS carbon capture and storage

IEA (2019a), World Energy Investment 2019, International Energy Agency CO2 carbon dioxide (IEA), Paris. CSP concentrated solar power Innovation, www.iea.org/topics/innovation/. IEA (2019b), EU European Union IEA (2018), World Energy Investment 2018, IEA, Paris. EV electric vehicle IPCC (2018), Global Warming of 1.5°C. An IPCC Special Report on the GDP gross domestic product impacts of global warming of 1.5°C above pre-industrial levels and GJ gigajoule related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, Gt gigaton sustainable development, and efforts to eradicate poverty [Masson- GW gigawatt Delmotte, V., P. Zhai, H.-O. Pörtner, D. Roberts, J. Skea, P.R. Shukla, IEA International Energy Agency A. Pirani, W. Moufouma-Okia, C. Péan, R. Pidcock, S. Connors, J.B.R. Matthews, Y. Chen, X. Zhou, M.I. Gomis, E. Lonnoy, T. Maycock, M. Tignor, IPCC Intergovernmental Panel on and T. Waterfield (eds.)]. Intergovernmental Panel on Climate Change Climate Change (IPCC), Geneva, and associated press materials. IRENA International Renewable Energy IRENA (forthcoming), Hydrogen: a renewable energy perspective, Agency IRENA, Abu Dhabi. LCOE levelised cost of electricity IRENA (2019a), Renewable capacity statistics 2019, International MENA Middle East and North Africa Renewable Energy Agency (IRENA), Abu Dhabi. NDC Nationally Determined IRENA (2019b), Global Energy Transformation: A Roadmap to 2050 Contributions (2019 Edition), IRENA, Abu Dhabi. O&M operation and maintenance IRENA (2019c), Renewable Power Generation Costs in 2018, IRENA, OECD Organisation for Economic Abu Dhabi. Co-operation and Development IRENA (2019d), Global energy transformation: The REmap transition OPEC Organization of the Petroleum pathway (Background report to 2019 edition), IRENA, Abu Dhabi. Exporting Countries IRENA (2019e), Renewable Energy and Jobs: Annual Review 2019, IRENA, PV photovoltaic Abu Dhabi. R&D research and development IRENA (2019f), “Renewables and energy efficiency work in tandem”, REmap Renewable Energy Roadmap Q-2019, pp1-2. STEM science, technology, engineering IRENA (2018a), Global Energy Transformation: A Roadmap to 2050 and mathematics (2018 Edition), IRENA, Abu Dhabi. SWH solar water heating Renewable Energy Benefits: Leveraging Local Capacity IRENA (2018b), TFEC total final energy consumption for Offshore Wind, IRENA, Abu Dhabi. TPES total primary energy supply IRENA (2017a), Renewable Energy Benefits: Leveraging Local Capacity USD U.S. dollar for Solar PV, IRENA and Lawrence Berkeley National Laboratory (LBNL), Abu Dhabi. VRE variable renewable energy IRENA (2017b), Renewable Energy Benefits: Leveraging Local Capacity for Onshore Wind, IRENA, Abu Dhabi. Paris Agreement [referring to United Nations (2015), Paris Agreement], United Nations, New York, https://treaties.un.org/doc/Treaties/2016/ 02/20160215%2006-03%20PM/Ch_XXVII-7-d.pdf.

52 ANNEX

ANNEX THE SOCIO-ECONOMIC FOOTPRINT OF CURRENT PLANS VS. ENERGY TRANSFORMATION

The socio-economic footprint analysis presented Socio-economic footprint in terms of here is based on the Energy Transformation scenario GDP and jobs (REmap) and an accompanying set of policy The footprints for gross domestic product (GDP) and assumptions (carbon taxation, fossil fuel subsidies, jobs present the relative performance of the Energy revenue recycling, etc.) deployed in the current Transformation and Current Plans scenarios, and socio-economic system structure. The results provide insights into both the advantages and the challenges the drivers must be interpreted in this context. Each of placing the transformation roadmap in its wider of the drivers has to be understood as quantifying socio economic context. The goal is to inform policy a differential impact. For instance, the investment making and foster synergies between changes in driver presents the effect on GDP or employment of energy use and socio-economic development, so the differential investment under the two scenarios. that the transformation delivers sustainability and The drivers capture the impact on the footprint of the resiliency. following elements: Energy transformation roadmaps exist only on paper, and the ability to implement them relies on Changes in investment. This driver evaluates the understanding their interactions with the system impact on GDP and jobs of overall investment in the in which they would be applied. By revealing economy. It includes the effect of transformation- these interactions, the socio-economic footprint related investment (renewables, energy efficiency, provides tools to facilitate successful deployment by energy flexibility, grids, etc.), of fossil fuel and nuclear overcoming potential challenges and barriers. investment, and of investment in other sectors in Changes are not limited to the scope of the Energy the economy. Often investment in one category Transformation scenario, and neither are the resulting moves in opposition to that in another (e.g., growing socio-economic structures. insights gained from investment in renewables and shrinking investment this socio-economic footprint analysis, however, is in fossil fuels). The investment driver presents the intended to help policy makers to reach informed net effect of these trends. decisions that can improve the outcome of the transformation. Notably, the transformation of energy Changes in trade. This driver evaluates the impact use can be closely aligned with broader goals of on GDP and jobs on trade as a whole: energy trade sustainability, resiliency and prosperity. and non-energy trade.

Changes are not limited to the scope of the Energy Transformation scenario

53 ANNEX

Changes in consumer spending due to tax rate Revenue balancing in government changes. The macroeconomic modelling assumes budgets government revenue balancing via income tax rate How government budgets are managed has an adjustments. A change in government tax revenues important effect on socio-economic results. The (whether via carbon taxes or reduced revenues from analytical methodology applied in this report assumes fossil-fuel production) is compensated by a change that governments will balance their revenues through in income taxes (up with an overall decrease in income taxes. Other policies – carbon taxation, phase- government revenues and down with an increase). outs of fossil fuel subsidies or reductions in fossil fuel These adjust consumer incomes and hence royalties caused by falling sales of fossil fuels – have a expenditure, contributing to changes in overall GDP. direct impact on government revenues. Changes in consumer spending due to indirect Under revenue balancing, government revenues and induced effects. This driver captures all other are balanced over the entire analysed period. Gains changes in consumer expenditure. It includes and losses are recycled to the population by way reallocations of expenditure (e.g. where energy price of a reduction or increase in income taxes, which rises reduce expenditure on energy, the resulting raises or lowers households’ disposable incomes and increase in consumption of other goods and services consumption, causing GDP to rise or fall. would be captured here), along with GDP impacts of Other government budgetary policies are possible, changes to aggregate consumer expenditure through including approaches to revenue balancing with the indirect and induced effects. This category also an eye to reducing inequality, using increased covers the impact of aggregated consumer prices revenue to raise public investment (sustaining the (including energy and general prices). transformation), or even using deficit spending to fund public investment over a transitional period. Each of these would lead to different socio-economic impacts. The International Renewable Energy Agency (IRENA) is currently exploring the impact of various budgetary policies on the socio-economic footprint.

Differential performance: Current Plans vs. Energy Transformation The socio-economic footprint of the Energy Hence, for any footprint performance indicator, such Transformation scenario is defined and measured in as jobs, instead of presenting the results in terms of the terms of differential performance relative to that of absolute evolution of jobs under the two scenarios, a the Current Plans scenario. This approach makes it jobs indicator is used which evaluates the differential possible to draw direct conclusions about whether the performance of the Energy Transformation scenario former performs better or worse than the latter and against that of the Current Plans scenario, in such a places the focus on differential performance, which way that at each point in time the jobs indicator is might otherwise be lost among the high numerical evaluated as: value of the absolute performance indicators (GDP, jobs, welfare).

Transition Scenario Jobs – Current Plans Scenario Jobs Jobs Indicator = Current Plans Scenario Jobs

54 55 TRANSFORMING THE ENERGY SYSTEM – AND HOLDING THE LINE ON RISING GLOBAL TEMPERATURES