Tracking energy transitions
IEA (2019), Energy Transitions Indicators, IEA, Paris https://www.iea.org/articles/energy-transitions-indicators
No single indicator can fully capture the complexity of the global clean energy transition. As the energy sector accounts for nearly 90% of CO2 emissions globally, it is the dominant contributor to climate change. The IEA’s clean energy transition indicators look beneath the energy sector’s contribution to CO2 emissions to track intermediate indicators underpinning changes in emissions, building up from underlying sector-specific emissions drivers.
By taking the pulse of whether the energy system is shifting as needed for overall CO2 emission reductions, these transition indicators can guide immediate policy action as well as drive long-term decarbonisation.
Global energy-related CO2 emissions are the product of economic, technological and demographic factors. The present indicators unpack the main underlying drivers of energy supply and demand that ultimately determine the energy sector’s contribution to CO2 emissions.
Working from the bottom up, the indicators incorporate information on changes in the economy’s energy intensity and the carbon intensity of energy supply across industry, buildings and transport end-use sectors. In parallel, they track power generation decarbonisation and progress on energy integration technologies. Further, cross cutting drivers, such as investment in low-carbon technologies, are included. Through this, the clean energy transition indicators can breakdown higher-level climate and energy objectives into measurable and identifiable areas for enhanced action that can act as levers to accelerate the transition. Together, they set up an accessible and comprehensive tracking framework that contributes to effective and well-co‑ordinated policy-making.
To most effectively track progress with clean energy transitions requires an understanding of what a clean energy transition could look like. Insights into the future impacts of today’s energy choices, based on current policy plans and investment choices, combined with a sense of what can be done differently in order to reach climate, energy access, pollution and other sustainability goals, set a framework against which indicators can be used to assess progress. The presentation of clean energy transition indicators below therefore combine historical data with the World Energy Outlook’s two main scenarios. The Stated Energy Policies Scenario (STEPS) reflects the impact of existing policy frameworks and further policy initiatives already announced. The Sustainable Development Scenario (SDS) explores pathways to reach climate change mitigation targets, cleaner air and universal energy access goals, the key elements of a clean energy transition.
The analysis begins with an assessment of the carbon intensity of final energy demand to gain a better understanding of how much CO2 is emitted per unit of the energy consumed. One way of improving this indicator, i.e. making it lower, can be by electrifying end-use subsectors, provided that the electrification is based on low-carbon power generation. Decoupling of economic growth and energy demand is equally crucial to a clean energy transition and tracked by changes in primary energy intensity. Finally, energy investment decisions preview of what the types of energy technologies that are about to be built, giving an indication of future clean energy technology deployment and emission reduction potential.
The most comprehensive clean energy transition indicator is a country’s or region’s energy-related carbon emissions. They are the end result of all underlying processes captured by the other indicators, and what matters most to overall greenhouse gas mitigation.
Global energy-related CO2 emissions rose by 1.7% in 2018, the second consecutive year of growth after three flat years, reaching a historic high of 33 Gt. The increase in emissions was driven by higher energy consumption resulting from a robust global economy as well as from weather conditions in some parts of the world that prompted higher energy demand for heating and cooling.
Current and planned policies, including countries’ Nationally Determined Contributions (NDCs), do not follow a Paris-compliant emissions trajectory: the increases of the past two years confirm that we are off track. To reach long-term climate change mitigation targets, emissions need to peak around 2020 and decline steeply thereafter, requiring a rapid reversal of the rebound seen during the last two years.
The IEA’s SDS shows that energy-related CO2 emissions need to be 52 % below the current level by 2040 to be on track with the Paris Agreement. To achieve this, they start falling at an increasing pace reaching 2% annual reduction in 2020s and 4.6% in 2030s.
Historical growth in CO2 emissions and future contributions to global carbon concentrations vary geographically depending on resource endowments and level of economic development. Regions and countries with the most mature economies, such as the European Union, the United States and Japan, have gradually reduced their carbon emissions over the past two decades.
In the US, transformations underway in the power sector were the main drivers. A rapid growth in renewables and the shift from coal to gas thanks to the shale revolution reduced carbon emissions by 16.6% between 2005 and 2017. However, the US experienced a rebound with a 2.8% increase of emissions between 2017 and 2018, mostly caused by extreme weather conditions driving up heating and cooling needs.
In Japan emissions declined in 2018 for a fifth year in a row due to continued energy efficiency improvements and an increase of nuclear power generation from reactors being brought back online.
In the European Union carbon emissions had largely plateaued since 2015 but saw a decline of 3.9% to 3.1 Gt in 2018. This drop can be mainly attributed to reduction of coal power generation and a growth in renewables, which reached a new high of nearly 35% of the electricity mix.
In the largest emerging economies, namely China and India, population and unprecedented economic growth in the past fifteen years strongly pushed up energy demand, which was met largely by greater fossil fuel use, alongside remarkable progress in renewables deployment and energy efficiency efforts.
China tripled its carbon emissions since 2000, witnessing recent growth of 2.7% or 256Mt in 2018, mainly due to an over 5% increase in electricity generation from coal-fired power stations, offsetting the impressive 186 TWh growth in renewables. Continuous improvement in Chinese energy intensity, has offset much of the additional energy demand growth that we would have witnessed.
India’s CO2 emissions increased by 71.4% between 2007 and 2017 and reached almost 2.3 Gt in 2018, with an annual growth of 4.9% from 2017. Nonetheless, India still shows per capita emission significantly below the world average. Considering existing and announced policies, India’s carbon emissions are likely to continue growing at their current pace to reach 3.6 Gt in 2030, driven by energy demand growth. With policy and technology in line with an SDS pathway, emissions could peak around 2025 and then gradually decline.
In contrast, China’s current policy framework leads to an emission peak before 2030 and then slowly decreases. However, to stay in line with energy-related climate mitigation targets requires China reaching its 2000-emission level around 2040 – a steep decline of 5% annually on average. While the EU and the US are expected to reduce emissions in the future, stated and planned policies would lead to emissions levels significantly above those in line with delivering long term climate mitigation targets. In 2040, this would lead to the EU having double and the US 2.5 times higher emissions than the ones outlined by the SDS pathway.
This indicator tracks total energy-related carbon emissions in tCO2 per unit of total final energy consumption (TFC), giving information on how much CO2 is emitted by the energy consumed in a region. It looks at the energy mix from a climate perspective, reflecting the net impact of policy changes, shifts in investment and technology developments on carbon emissions in the energy sector.
At the global level, this indicator has changed very little in the last 20 years. It has been on a declining trajectory since a peak in 2013, showing tentative signs that the global energy supply has become somewhat cleaner with greater use of renewables and less coal in recent years.
Nevertheless, higher fossil fuel use to meet final energy demand growth has stalled improvement since 2016. Consequently, carbon intensity declined by only 5% since 2013 with an annual reduction rate of 1%. However, meeting the SDS carbon intensity reductions of 24% by 2030 and 50% by 2040 will require progressive increase in annual rate of carbon intensity reduction, from 2.2% throughout 2020s to 4.2% in 2030s.
Between 2000 and 2014, China and India experienced noticeable increases in their final energy carbon intensity. While both countries seem to have peaked and been following a flatter trajectory in the past years, they experienced a rebound in 2017-18, indicating an increase in fossil fuel use across power generation and end uses. Together with Japan’s significant jump in intensity due to nuclear power plant closures following the Fukushima Daiichi accident in 2011, these offset improvements made in the US and EU, mainly through a reduction in coal-based electricity generation in both regions.
Stated and planned policies imply a continued decline in final energy carbon intensity in the US, EU, Japan and China, indicating concerted policy drive to decarbonise energy supply. India’s carbon intensity starts reducing after 2030, which reflects the significant renewable capacity increase planned in the near future.
The rate at which intensity declines needs to at least double to put countries on a sustainable development trajectory. In the SDS, carbon intensity reductions in the EU double to 4.2% and in Japan and the US more than triple to a 3.9% average annual decline until 2040. On a sustainable pathway, China reaches a reduction rate of 4.8% and India scales up from 0.2% to 2.4% on average. This decrease in the CO2 intensity of energy is seen in the potential composition of future primary energy demand, which consists in 2040 globally of 26% low-carbon energy sources under current policies compared to 42% in the SDS.
To rapidly reduce the carbon intensity of energy demand, the electrification of end-use sectors can offer quick and cost-efficient possibilities for decarbonisation. However, these can only be exploited if electrification is accompanied at the same time by rigorous decarbonisation of power (heat and electricity) generation. Increasing shares of low-carbon electricity can be used to provide energy in transport (e.g. for electric vehicles and rail), in buildings (for cooking, heating and appliances), in some industrial applications, and for the production of low-carbon fuels (e.g. hydrogen).
The share of electricity and heat in final energy consumption rose incrementally each year from 19% in 2000 to almost 22% in 2017, with electricity making up 19%. Considering recently implemented and planned policies, it is likely that the share of power in final energy use expands at a similar pace to reach 27% in 2040, but this pace needs to more than double to achieve the 33% outlined in the SDS. This implies that electric vehilces account for three-quarters of total car sales, convential car sales are only 30% of today’s level, and that power covers 39% of industrial energy demand.
In order for electrification to be a mean to decarbonisation and improved health outcomes, reduction in the carbon intensity of power generation needs to speed up to be on track with an SDS trajectory. Having remained flat between 2000 and 2014, a significant global transformation of the power sector has begun in 2014, with carbon intensity dropping over 8% from 490 gCO2/kWh to 450 gCO2/kWh (2018).
However, even though renewables increased their share in global electricity generation to 25.6%, coal and gas-fired power generation still continued rising. Although the average carbon intensity of power generation declined between 2012 and 2018 2.2% annually on average, it is far below the 7% reduction rate that would be needed to reach a global average of 91 gCO2/kWh by 2040 under the SDS.
Therefore, significantly more efforts are needed to support low-carbon technology deployment, such as renewables and CCUS, as well as early retirement of unabated coal-fired plants.
Between 2000 and 2018, China doubled its share of electricity and heat in final energy use to 30%, driven by strong increases in industry electricity demand. At the same time, it reduced its power generation carbon intensity by 29% to 573 gCO2/ kWh as a result of significant efficiency improvements of its coal power plants and a rapid deployment of low-carbon technologies, though the intensity remains above global average.
Between 2000 and 2018, India strongly raised its power share in TFC by 7%, increasing electricity supply in line with economic growth. With 17% electricity share in 2017, it shows considerable additional potential to reach the global average. India also decreased its power carbon intensity in the same period by 12%, mostly thanks to an increased share of renewables in the electricity mix, but its power sector remains dependent on fossil fuels, with an intensity at 709 gCO2/ kWh in 2018.
If both emerging economies sustain their current electrification rates, they come close to the SDS power shares in TFC of 46% (China) and 30% (India) in 2040. To achieve a clean energy transition through electrification, however, the power carbon intensity in both countries needs to decrease below 115 gCO2/kWh by 2040. This requires a significant acceleration in the reduction of carbon intensity until 2040, from the current annual reduction rate of around 2% to over 7% in China and 1.3% to 8.2% in India on average.
The US and EU did not change their share of power in TFC between 2010 and 2017, remaining at about 22% and nearly 25%, respectively. Reaching shares of 32% (US) and 42% (EU) in 2040, which the SDS shows as possible, requires a reversion of this trend. In the US, the shale gas boom made gas-fired electricity more competitive compared to coal-based generation. Together with the expansion of renewables, this led to a decrease in power carbon intensity by 35% between 2000 and 2018.
Likewise, the EU decreased its carbon intensity by 32% thanks to continued growth in renewable and decline of coal-based electricity generation. However, both need to accelerate and then sustain reduction rates to achieve a decline of around 85% and reach an intensity of about 42 gCO2/ kWh by 2040 as layed out in the SDS.
The energy intensity indicator tracks total primary energy demand per unit of GDP, or how much energy is required to produce an area’s economic output in a given country or region.
In 2018, global energy intensity improved by only 1.2%, the third consecutive annual decline from the 2.9% improvement in 2015 and the slowest rate since 2010. Recently, falling energy intensity was the main factor behind the flattening of global energy-related CO2 emissions from 2013‑2016, as it offset three-quarters of the impact of GDP growth. However, the significant growth in primary energy demand by 2.3% in 2018 led to the further slowdown of intensity improvements.
While technologies and processes are constantly becoming more efficient and technical efficiency improvements made since 2015 avoided about 4% more energy use in 2018, structural factors are blunting the impacts of efficiency on energy demand. The impact on intensity improvement from structural changes in industry away from energy-intensive production has gradually weakened since 2013.
In 2018, it actually added to energy demand, mostly due a production expansion of energy-intensive industries in China and the US. Sectoral analysis of energy efficiency shows that even though policy coverage has been expanding, the rate of this expansion gradually declined in the past years.
In transport, vehicle efficiency improved but consumers bought larger cars and vehicle occupancy rates fell. An increased use of electronic devices and a strong growth in average per capita residential floor area have outpaced recent efficiency gains in the buildings sector, adding to the growth in primary energy demand. In contrast, reaching the SDS requires that energy intensity reductions accelerate to 3.6% annually from today through to 2040, an unprecedented level.
This implies that total global primary energy demand cannot exceed current levels, despite continued economic growth. If current structural trends continue, technical efficiencies need to increase much more rapidly to achieve a level of energy intensity improvement that is consistent with the SDS pathway.
As China, India, the US and EU account for more than 60% of global GDP, they had the strongest impact on the global energy intensity trend in recent years, but improvement rates varied across regions.
China improved its energy intensity at a rather high rate of 2.8% in 2018, though this is much lower than the 2016 rate. A key factor behind this development was the strong rebound of China’s energy-intensive steel production, with output growing more than 14% since 2017.
India improved at a similar rate of nearly 3% mostly based on energy efficiency increases in the industry and service sector. In 2017, these efficiency improvements avoided 6% more energy use, preventing nearly 145 Mt CO2 eq. in GHG emissions in India. In the US, primary energy intensity worsened for the first time in 25 years by 0.8% mainly due to the expansion of energy-intensive industrial production, such as petrochemicals, and extreme weather, which drove up energy use for both heating and cooling.
Only the EU accelerated energy intensity improvements from 1.4% in 2017 to 2% in 2018, which resulted from a mild winter that reduced heating demand. To achieve climate and other sustainability goals, all areas are required to increase primary energy intensity improvement rates. The EU and US have to accelerate intensity reduction to an annual average of slightly more than 3%, while China and India need to sustain a rate of 4.5% throughout to 2040.
Energy investment decisions provide a preview of what types of technologies are going to be developed or are about to be built. Likewise, tracking the amount of investment in low-carbon energy sources gives an indication of the trajectory of clean energy technology deployment into the future.
Following three consecutive years of decline, total energy investments stabilised in 2018 at just over $1800 billion. This trend was driven by higher upstream oil & gas and coal supply spending while investment in renewables edged down.
Energy efficiency investments remained flat due to stagnating spending on energy efficient buildings. Financing a global clean energy transition requires only about 20% more investment than spendings expected under current and announced polices between 2018-2040, with average annual total over this period increasing to $3200 billion, but involves a significant re-allocation of resources towards cleaner enery sources. Between 2014 and 2018 on average, 35% of the total investment was directed to energy efficiency and low-carbon technologies. To unlock the full potential of clean energy technology benefits, this share should increase to 70% by 2040.
Taking a closer look at energy supply side investments, 23% was dedicated to low-carbon sources in 2018 and 59% to fossil fuels. To unlock the benefits of sustainable development transition does not require more supply investment than expected under the existing and planned policies, however, its allocation to low-carbon energy sources needs to increase to 40% on average by 2030.
In China, a drop of over 60% in spending on new coal-fired plants led to a decline in total energy investments by 7% over the past three years, as it was not counterbalanced by a corresponding increase in low-carbon electricity and energy efficiency investment.
Nevertheless, China remained the largest energy investment destination in 2018. Within energy supply investment, China spent about 34% on low-carbon technologies and 39% on fossil fuels in 2018. To follow a SDS pathway, low-carbon investments need to make up more than 48%, while fossil fuel spending has to decline to 17% by 2030.
In India, total energy investment rose by 12% in 2018, recording the highest growth amongst all the countries over the past three years. Moreover, nearly 30% of India’s energy supply investments was directed to low carbon sources in 2018, but fossil fuels still took nearly 43% of the total share. To reap the clean energy benefits in India, the expected amount of energy supply investment under existing and planned policies could be sufficient, but requires a reallocation of investment with spending dedicated to low-carbon technologies increasing to at least 44% at the expense of fossil fuels by 2030.
Total energy investment in the EU has declined over the past three years, with energy efficiency being the only area on the rise. Investment in renewable power slowed, in part due to falling costs. Within the energy supply investments, almost 39% were spent on low-carbon technologies in 2018, with the share expected to increase to 51% until 2030 under existing and planned policies. While this is in line with what a clean energy transition would require, total supply investment also needs to increase on average by 17%.
In the US, investment in renewable power remained stable since 2015 while energy efficiency spending declined. Growth in energy supply investments this decade was driven by spending fossil fuels, namely shale.
Looking at the North American region as a whole (including US, Canada and Mexico), only 16% of energy supply spending in 2018 flew to low-carbon energy sources and 64% to fossil fuels. Under planned projects, the latter scales up to 73% while the amount of spending in low-carbon even decreases. This scale up partly results from investment flows to upstream oil & gas extraction, which are not necessarily consumed within the region.
This distorts the regional oil & gas upstream investment picture persisting under the sustainable development trajectory. However, reaping the clean energy transition benefits would require a different composition of the overall supply side investment. Although even less total resources than the ones currently planned are required, North American investment dedicated to low-carbon technologies needs to more than double to at least $123 billion annually between 2025 and 2030.