The future of global energy for SMEs

In 2021, the International Energy Association (IEA) published two important reports on the global energy sector. The first, ‘Global Energy Review 2021’, assesses the direction energy demand and carbon emissions are taking and the second, ‘Net Zero by 2050’, provides a roadmap to transition to a net zero energy system by 2050. We’ve summarised the key findings below including key considerations for SME businesses:

Global Energy Review 2021: what are the key findings?

• The COVID-19 pandemic continues to impact global energy demand
• Emerging markets are driving energy demand back above 2019 levels
• Global energy-related CO2 emissions are heading for their second-largest annual increase ever
• Sluggish demand for transport oil is mitigating the rebound in emissions
• Global coal demand in 2021 is set to exceed 2019 levels and approach its 2014 peak
• Among fossil fuels, natural gas is on course for the biggest rise relative to 2019 levels
• Electricity demand is heading for its fastest growth in more than 10 years
• Renewables remain the success story of the COVID-19 era with a 3% increase in use while demand for all other fuels declined. The primary driver was an almost 7% growth in electricity generation from renewable sources
• Renewables are on track to set new records in 2021 providing more than half of the increase in global electricity supply
• Wind is set for the largest increase in renewable generation, growing by 275 TWh, or almost 17%, which is significantly greater than 2020 levels
• Globally, solar photovoltaics (PV) electricity generation is expected to increase by 145 TWh, almost 18%, to approach 1000 TWh in 2021
• They expect hydropower generation to increase further in 2021 through a combination of economic recovery and new capacity additions from large projects in China
• In 2021, the biofuels market is likely to recover and approach 2019 production levels as transportation activity slowly resumes and biofuel blending rates increase
• China alone is likely to account for almost half the global increase in renewable electricity generation
• Global CO2 emissions declined by 5.8% in 2020 – the largest ever decline and almost five times greater than 2009 decline.¹

Net zero by 2050

According to the IEA, this is a critical year at the start of a critical decade to transform the energy systems that underpin our economies in a bid to tackle the climate crisis and achieve net zero emissions by 2050. Its report, ‘Net Zero by 2050’, outlines the most technically feasible, cost effective and socially acceptable pathways to reach net zero.

There are more than 400 clear milestones set out in the report (spanning all sectors and technologies) guiding what needs to happen and when to transform the global economy from one dominated by fossil fuels into one powered predominantly by renewable energy. Here are some of the priority actions for policymakers laid out in IEA’s report:

• Make the 2020s the decade of massive clean energy expansion – all the technologies needed to achieve the necessary deep cuts in global emissions by 2030 already exist, and the policy that can drive their deployment area already proven.
• Prepare for the next phase of the transition by boosting clean energy innovation – clean energy innovation must accelerate rapidly, with governments putting research and development (R&D), demonstration and deployment at the core of energy and climate policy.
• Clean energy jobs will grow strongly, but must be spread widely – energy transitions have to take account of the social and economic impacts on individuals and communities, and treat people as active participants.
• Set near-term milestones to get on track for long-term targets – governments need to provide credible step-by-step plans to reach their net zero goals, building confidence among investors, industry, citizens and other countries.
• Drive a historic surge in clean energy investment – policies need to be designed to send market signals that unlock new business models and mobilise private spending, especially in emerging economies.
• Address emerging energy security risks now – ensuring uninterrupted and reliable supplies of energy and critical energy-related commodities at affordable prices will only rise in importance on the way to net zero.
• Take international co-operation to new heights – this is not simply a matter of all governments seeking to bring their national emissions to net zero – it means tackling global challenges through co-ordinated actions.

By 2030 globally we aim to achieve:

• total CO2 emissions of 21.1 Gt
• most new clean technologies in heavy industry demonstrated at scale
• phase-out unabated coal in advanced economies
• all new buildings are zero-carbon ready
• 60% of global car sales are electric
• 1,020 GW annual solar and wind additions
• 150 Mt low-carbon hydrogen; 850 GW electrolysers

By 2035 globally we aim to achieve:

• total CO2 emissions of 12.8 Gt
• virtually all heavy industry capacity additions are innovative low-emissions routes
• most appliances and cooling systems sold are best in class
• no new internal combustion engine car sales
• 50% of heavy truck sales are electric
• all industrial electric motor sales are best in class
• capacity fitted with carbon capture, utilisation and storage (CCUS) or co-firing hydrogen-based fuel reaches 6% of total generation
• overall net zero emissions electricity in advance economies
• four Gt CO2 captured

By 2040 globally we aim to achieve:

• total CO2 emissions of 6.3 Gt
• around 90% of existing capacity in heavy industries reach end of investment cycle
• net zero emissions electricity globally
• phase out of all unabated coal and oil power plants
• electrolyser capacity reaches 2400 GW
• oil demand is 50% of 2020 level
• 50% of fuels used in aviation are low-emissions
• 50% of existing building retrofitted to zero-carbon-ready levels

By 2050 globally we aim to achieve:

• zero Gt total CO2 emissions
• more than 90% of heavy industrial production is low-emissions
• more than 85% of buildings are zero-carbon-ready
• 520 Mt low-carbon hydrogen
• renewables reach almost 90% of total electricity generation
• almost 70% of electricity generation globally from solar PV and wind
• 7.6 Gt CO2 captured²

What does this mean for SME businesses?

In November 2021, the United Nations Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP26) will happen in the city of Glasgow, Scotland. As it approaches, an increasing number of countries have announced their long-term goals to achieve net zero greenhouse gases and we are likely to see further plans and regulations to put in place the actions necessary to turn those into reality. New global and UK governance is likely to have some impact to businesses across the UK.

For example, in transport, emissions are expected to drop by 20% to 2030 and 90% to 2050. The initial focus is on increasing the operational and technical efficiency of transport systems, modal shifts and the electrification of road transport. But by 2030, fuel cell or electric vehicles will need to account for 30% of heavy truck sales (this was less than 0.1% in 2020). And by 2050 nearly all heavy trucks sold will need to be fuel cell or electric.²

In order to achieve this and meet regulations, businesses will need to make changes to their operations. We expect these changes to have an impact on the risks to businesses. So, when you begin to build your strategy to net zero, we would urge you to seek advice from experienced professionals to ensure you review these risks, put in plans to mitigate them and have adequate insurance in place to protect your business.

<sup>The information contained herein is based on sources we believe reliable and should be understood to be general insurance and risk management information only. The information is not intended to be taken as advice and cannot be relied upon as such.

Statements concerning legal, tax or accounting matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal, tax or accounting advice, which we are not authorised to provide.</sup>

^Sources:

^{1. International Energy Association, Global Energy Review 2021, April 2021
2. International Energy Association, Net Zero by 2050, May 2021}