The energy transition: signposts and scenarios

What’s the difference between a projection and a scenario?

A projection like the Outlook starts with current factors such as public policy and commercially available technology and then evaluates how they might change over time. In contrast, many scenarios start with a hypothetical outcome and work backward to identify the factors that need to occur to achieve that outcome.  Both are important views.  Back-casted scenarios help society understand the actions that may be needed to achieve a hypothetical outcome while projections help society understand the current path.

How do scenarios inform?

ExxonMobil considers a range of scenarios – including those we view as remote – to help inform the company’s strategic thinking. No single pathway can be reasonably predicted, given the wide range of uncertainties. Key unknowns include yet-to-be-developed government policies and advances in technology that may influence the cost, pace, and potential availability of certain pathways. Scenarios that employ a full complement of technology options are likely to provide the most economically efficient pathways. What also remains uncertain is how quickly and to what extent businesses and consumers will be willing to pay for carbon reductions in the products and services they use, which is essential to creating a market that incentivizes an accelerated path to net zero.

Unlike the company’s Outlook, many scenarios, such as International Energy Agency’s Net Zero Emissions (IEA NZE) by 2050, work backward from a hypothetical outcome to identify the factors needed to achieve that outcome. It is important to note that the IEA acknowledges that society is not on a net-zero pathway, and that the NZE scenario assumes an unprecedented level of energy efficiency gains, innovation and technology transfers, lower-emissions investments, and globally coordinated greenhouse-gas reduction policies by governments.

• Views of the future path of the world’s energy system and emissions levels can be grouped into three categories.

• Society’s Current Trajectory
  • ExxonMobil’s Global Outlook bases its view of energy demand and supply through 2050 on observable trends in population, economic development, policy, technology and consumer preferences.
  • The International Energy Agency’s Stated Energy Policies Scenario (STEPS)¹ reflects a sector-by-sector assessment of current policy in place or announced by governments around the world.
• Paris-Aligned Scenarios
  • The U.N. Intergovernmental Panel on Climate Change’s (IPCC) database contains 311 scenarios defined as pathways with a 67% likelihood of limiting peak warming to below 2°C throughout the 21st century. These are labelled IPCC Likely below 2°C scenarios².
  • The International Energy Agency’s Announced Pledges Scenario (APS)¹ assumes that all aspirational targets announced by governments are met on time and in full, including their long-term net zero and energy access goals.
• Net zero by 2050
  • The International Energy Agency’s Net-Zero Emissions by 2050 Scenario (NZE)¹ is an aggressive pathway that assumes all necessary changes in policy, technology and human behavior occur for the global energy sector to reach net-zero CO₂ emissions by 2050.

• It is important to note that according to the U.N. Environment Programme Emissions Gap Report ³, the current Nationally Determined Contributions (NDCs) to emissions reductions that countries have pledged to make by 2030 are not yet within a Likely Below 2°C pathway. It further states that G20 members as a group do not have policies in place to achieve their current NDCs.

• ExxonMobil’s view is that while any one scenario may be remote in probability, all of these projections and scenarios are useful in informing the company’s long-term strategic thinking.

• The Global Outlook projects that the biggest change in the world’s energy mix between now and 2050 will be a significant increase in solar and wind, coupled with a significant reduction in coal.
• Solar and wind are projected to increase fivefold, from 2% of the world’s supply to over 10%. Coal will increasingly be displaced by lower-emission sources of electricity production – not just renewables but also natural gas, which has about half the carbon intensity of coal in electricity generation. Overall, electricity use will grow 80% by 2050.
• The Outlook projects that oil and natural gas will still make up more than half of the world’s energy supply in 2050.
• The three IEA scenarios show significant differences, from moderate renewable energy penetration and high fossil fuel use under current policy to a dramatic increase in renewables and accompanying reduction in fossil fuel use under the aggressive NZE scenario.
• Similar to the IEA APS, the IPCC’s Likely Below 2°C scenario sees a considerably larger role than the Outlook does for renewables – around 30% of total global energy – yet even this average still has oil and natural gas comprising 38% of total global energy supply in 2050.
• Because averages can mask large underlying differences, it is also important to look at the range of energy-mix outcomes across the IPCC's 311 Likely Below 2°C scenarios.
  • Some see coal being completely zeroed-out by 2050.
  • Some see a revival of nuclear that brings this emissions-free energy source to 42% of the world’s total energy.
  • Some see renewables growing almost 12X to become the world’s dominant energy source.
  • And some see oil and natural gas retaining the top spot and actually meeting more of the world’s energy supply than they do today, while still achieving the Likely Below 2°C target.
• A final point worth noting is the difference in energy use per person under the various projections and scenarios. Currently, the global average is 74 million BTUs (MMBTU) per person per year, and has been rising for decades as people in developing countries gain access to modern energy. The Global Outlook projects this will fall to 68 MMBTU by 2050, an 8% reduction as technology and efficiency gains enable continued human development with less energy. The most extreme scenario, IEA NZE, sees energy use per person falling by almost 30%, which would require unprecedented decreases in demand through consumer behavior change and efficiency gains.

• The third-party scenarios illustrate that the energy transition will evolve differently in each region based on access to infrastructure, technology, policy, and resources. For instance, the transition is expected to evolve differently based on relative proximity to quality wind, solar, hydrocarbons, and carbon storage sites, among others.
• These scenarios imply a range of lower-emission growth opportunities as highlighted in the chart, which looks across the IPCC Likely Below 2°C scenarios and illustrates the average (blue bars) growth potential of various lower-emission solutions.
• While all of these solutions are needed, the black bars represent the wide range of growth potential across the IPCC Likely Below 2°C scenarios.
• To support further deployment of these technologies at scale, additional policies and technology advancements are needed to incentivize investments.
• Striking the right balance in investments at a pace consistent with policy support and technology advancements is crucial.

The energy system in 2050: Signposts to watch

Every major projection and scenario considers a range of variables that will shape how the global energy system looks in the year 2050. Each one of these is an important signpost to follow to gauge the pace of the energy transition. Consider the growth of low-carbon power. In the NZE scenario, the IEA assumes that 100% of power generated across the world will be low-carbon, compared with about 9% currently. Under current policy, reflected by the Outlook and STEPS, the figures are 69% and 79% respectively. That still represents significant growth, but it is far lower than the increase assumed by the IEA in the NZE scenario.  

The road to net zero: Deployment speeds are critical 

The transition to 2050 in the Likely Below 2°C and 1.5°C scenarios is of such a magnitude that, in the next 10 years, noticeable trends should emerge to indicate whether the world is moving in that direction. 

• Energy efficiency: Improvement in energy use per capita is a key trend across these scenarios. In recent history, the world has seen an increase in energy use per capita as living conditions in the developing world have improved, more than offsetting efficiency trends in the developed world. This trend would need to reverse.
• Solar and wind power: Solar capacity installed each year would have to increase by 3-4X the rate of the past five years. Wind turbines would have to be built at 2-4X the recent rate.
• Carbon capture and storage: There are about 40 million metric tons per year of total carbon capture and storage facilities in operation around the world. Over the next decade, 1-3X the entire existing carbon capture and storage capacity would have to be added every year.
• Nuclear: Capacity would have to be added at around 3X the recent rate.
• Biofuels: Growth would need to continue for an entire decade and require commensurate growth in logistics. Whereas the IPCC Likely Below 2°C would require a growth slightly less than the average of the past five years, the IEA NZE would require 3X that growth in the next decade.
• Low-carbon hydrogen: Growth would have to reach almost 40% per year in the IEA NZE scenario.

FOOTNOTES:

1. IEA (2023), World Energy Outlook 2023, IEA, Paris https://www.iea.org/reports/world-energy-outlook-2023, License: CC BY 4.0 (report); CC BY NC SA 4.0 (Annex A) and IEA (2023), Net Zero Roadmap: A Global Pathway to Keep the 1.5 °C Goal in Reach, IEA, Paris https://www.iea.org/reports/net-zero-roadmap-a-global-pathway-to-keep-the-15-0c-goal-in-reach.
2. Edward Byers, Volker Krey, Elmar Kriegler, Keywan Riahi, Roberto Schaeffer, Jarmo Kikstra, Robin Lamboll, Zebedee Nicholls, Marit Sanstad, Chris Smith, Kaj-Ivar van der Wijst, Alaa Al Khourdajie, Franck Lecocq, Joana Portugal-Pereira, Yamina Saheb, Anders Strømann, Harald Winkler, Cornelia Auer, Elina Brutschin, Matthew Gidden, Philip Hackstock, Mathijs Harmsen, Daniel Huppmann, Peter Kolp, Claire Lepault, Jared Lewis, Giacomo Marangoni, Eduardo Müller-Casseres, Ragnhild Skeie, Michaela Werning, Katherine Calvin, Piers Forster, Celine Guivarch, Tomoko Hasegawa, Malte Meinshausen, Glen Peters, Joeri Rogelj, Bjorn Samset, Julia Steinberger, Massimo Tavoni, Detlef van Vuuren.  AR6 Scenarios Database hosted by IIASA, International Institute for Applied Systems Analysis, 2022. doi: 10.5281/zenodo.5886911 | url: data.ece.iiasa.ac.at/ar6/; Likely Below 2°C defined by category C3.
3. United Nations Environment Programme Emissions Gap Report 2021, The Heat Is On: A World of Climate Promises Not Yet Delivered, https://www.unep.org/resources/emissions-gap-report-2021.
4. History is average of 2015 – 2019; actuals and history based on ExxonMobil Energy Outlook unless otherwise sourced.
   Outlook, IEA annual change in energy per capita start from ‘19 to avoid the low COVID base year as the starting point;  2019 data not available for IPCC.
   Carbon capture capacity uses 90% capacity factor assumed.
   Nuclear history from 2014-2018; Nuclear deployment estimates include IHS retirement profile (Markit Global Energy Scenarios data set, Inflections scenario, July 2022); History is EM analysis based on IHS / IAEA; Wind, Solar, and Nuclear deployment calculated from TWh based on fixed capacity factors of 35%,17%, and 85% respectively, where capacity is not stated.  IEA commercial scale solar estimated based on STEPS, APS, and NZE forecast total solar, applying average proportion of commercial scale solar from IEA Renewables 2022 Report (figure 1.5; historical data and accelerated case).