PERSPECTIVES FOR THE ENERGY TRANSITION Investment Needs for a Low-Carbon Energy System About the IEA The International Energy Agency (IEA), an autonomous agency, was established in November 1974. Its primary mandate was – and is – two-fold: to promote energy security amongst its member countries through collective response to physical disruptions in oil supply, and provide authoritative research and analysis on ways to ensure reliable, affordable and clean energy for its Page | 1 29 member countries and beyond. The IEA carries out a comprehensive programme of energy co- operation among its member countries, each of which is obliged to hold oil stocks equivalent to 90 days of its net imports. The Agency’s aims include the following objectives: • Secure member countries’ access to reliable and ample supplies of all forms of energy; in particular, through maintaining effective emergency response capabilities in case of oil supply disruptions. • Promote sustainable energy policies that spur economic growth and environmental protection in a global context – particularly in terms of reducing greenhouse gas emissions that contribute to climate change. • Improve transparency of international markets through collection and analysis of energy data. • Support global collaboration on energy technology to secure future energy supplies and mitigate their environmental impact, including through improved energy efficiency and development and deployment of low-carbon technologies. • Find solutions to global energy challenges through engagement and dialogue with non- member countries, industry, international organisations and other stakeholders. About IRENA The International Renewable Energy Agency (IRENA) is an intergovernmental organisation that supports countries in their transition to a sustainable energy future, and serves as the principal platform for international co-operation, a centre of excellence, and a repository of policy, technology, resource and financial knowledge on renewable energy. 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 This report presents the perspectives on a low-carbon energy sector of the International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA). The Executive Summary and Chapters 1 and 4 reflect the findings of both the IEA and IRENA Secretariats (unless certain findings are expressed by one of them only), Chapter 2 reflects the IEA’s findings only, and Chapter 3 reflects IRENA’s findings only. The chapters do not necessarily reflect the views of the IEA’s nor IRENA’s respective individual members. The IEA, IRENA and their officials, agents, and data or other third-party content providers make no representation or warranty, express or implied, in respect to the report’s contents (including its completeness or accuracy) and shall not be responsible or liable for any consequence of use of, or reliance on, the report and its content. The mention of specific companies or certain projects or products in the report does not imply that they are endorsed or recommended by the IEA or IRENA in preference to others of a similar nature that are not mentioned. The designations employed and the presentation of material herein do not imply the expression of any opinion on the part of the IEA Secretariat or IRENA concerning, and are without prejudice to, the legal status of any region, country, territory, city or area or of its authorities, or concerning the delimitation of frontiers or boundaries. © OECD/IEA and IRENA 2017. If you wish to cite specific excerpts of this report in your work pursuant to www.iea.org/t&c, please attribute as follows: for joint IEA and IRENA views expressed in the Executive Summary and/or chapters 1 and 4: Source: [Executive Summary/Chapter [1/4]] of Perspectives for the energy transition – investment needs for a low-carbon energy system ©OECD/IEA and IRENA 2017; for IEA findings expressed in chapter 2: Source: Chapter 2 of Perspectives for the energy transition – investment needs for a low-carbon energy system ©OECD/IEA 2017; for IRENA findings expressed in the Executive Summary and/or chapters 3 or 4: Source: [Executive Summary/Chapter [3/4]] of Perspectives for the energy transition – investment needs for a low-carbon energy system ©IRENA 2017. Acknowledgements © OECD/IEA and IRENA 2017 Acknowledgements This publication was prepared by the IEA and IRENA Secretariats, with support and funding from the German Federal Ministry for Economic Affairs and Energy (BMWi). Page | 2 The study benefited from the input of the following expert peer reviewers: Claudio Alatorre- Frenk (IADB), Marius Backhaus (BMWi), Nico Bauer (PIK), Morgan Bazilian (World Bank), Thomas Koch Blank (RMI), Kristen Brand (Ecofys), Simon Buckle (OECD), Daniel Buira (Tempus Analitica), Anthony Cox (OECD), Luis Crespo (ESTELA), Chiara Dalla Chiesa (ENEL), Ottmar Edenhofer (PIK), Volkan Ediger (Kadir Has University of Turkey), Martha Ekkert (BMWi), Malte Gephart (Ecofys), Norbert Gorißen (BMUB), Sarah Gül (Ecofys), Bill Hare (Climate Analytics), Claudia Keller (BMUB), Jules Kortenhorst (RMI), Ken Koyama (IEEJ), Elmar Kriegler (PIK), Kees Kwant (IEA Bioenergy Technology Collaboration Programme), Sarah Ladislaw (CSIS), Benoit Lebot (IPEEC Secretariat), Douglas Linton (OPEC), Gunnar Lederer (PIK), Cornelia Marschel (BMUB), Malte Meinshausen (University of Melbourne), Sebastian Petrick (BMWi), Teresa Ribera (IDDRI), Michiel Schaeffer (Climate Analytics), Roberto Schaeffer (COPPE, Universidade Federal do Rio de Janeiro), Martin Schöpe (BMWi), Julia Schweigger (BMUB), James Sherwood (RMI), Adnan Shihab-Eldin (Kuwait Foundation), Stephan Singer (CAN International), Francesco Starace (ENEL), Fabian Wigand (Ecofys), Christian Zankiewicz (BMWi), Carolin Zerger (BMUB), William Zimmern (BP). The individuals and organisations that contributed to this study are not responsible for any opinions or judgments it contains. All errors and omissions are solely the responsibility of the IEA and IRENA. © OECD/IEA and IRENA 2017 Table of Contents Table of contents Acknowledgements ........................................................................................................................... 2 Table of contents ............................................................................................................................... 3 Executive Summary ........................................................................................................................... 5 Page | 3 Introduction .................................................................................................................................... 17 Report Structure ................................................................................................................... 18 Methodology ........................................................................................................................ 19 Chapter 1: Energy and Climate Change ........................................................................................... 23 Climate change and a changing energy investment landscape ............................................ 23 Role of G20 countries in energy and climate change ........................................................... 35 Carbon budget ...................................................................................................................... 45 References ............................................................................................................................ 49 Chapter 2: Energy Sector Investment to Meet Climate Goals ........................................................ 51 Key messages ........................................................................................................................ 51 Introduction .......................................................................................................................... 52 Defining the scenarios .......................................................................................................... 53 Overview of trends in the 66% 2°C Scenario ........................................................................ 56 Power sector in the 66% 2°C Scenario .................................................................................. 73 End-use sectors in the 66% 2°C Scenario ............................................................................. 82 Implications of the 66% 2°C Scenario ................................................................................. 106 References .......................................................................................................................... 119 Chapter 3: Global Energy Transition Prospects and the Role of Renewables ............................... 121 Key messages ...................................................................................................................... 121 Introduction ........................................................................................................................ 124 Definitions of the Reference Case and REmap ................................................................... 125 Energy transition to 2050: a key role for renewable energy .............................................. 129 The economic case