AnewperspectiveondecarbonisingtheglobalenergysystemMatthewIves,LucaRighetti,JohannaSchiele,KrisDeMeyer,LucyHubble-Rose,FeiTeng,LucasKruitwagen,LeahTillmann-Morris,TianpengWang,RupertWay&CameronHepburnApril2021??Aboutthisreport??AreportfortheUK-ChinaCooperationonClimateChangeRiskAssessmentPhase3project,fundedthroughtheprosperityprogrammingoftheForeign,CommonwealthandDevelopmentOfficeanddevelopedincooperationwithTheRoyalInstituteofInternationalAffairs(ChathamHouse)●Authors??????????MatthewC.Ives|InstituteforNewEconomicThinking&SmithSchoolforEnterpriseandtheEnvironment,UniversityofOxford,UKLucaRighetti|FutureofHumanityInstitute,UniversityofOxford,UKJohannaSchiele|HarvardKennedySchool,HarvardUniversity,USAKrisDeMeyer|EarthSciences,UniversityCollegeLondon,UKLucyHubble-Rose|CommunicatingClimateSciencePolicyCommission,UniversityCollegeLondon,UKFeiTeng|InstituteofEnergyEnvironmentandEconomy,TsinghuaUniversity,LucasKruitwagen|SmithSchoolforEnterpriseandtheEnvironment,UniversityofOxford,UKLeahTillmann-Morris|SmithSchoolforEnterpriseandtheEnvironment,UniversityofOxford,UKTianpengWang|InstituteofEnergyEnvironmentandEconomy,TsinghuaUniversity,RupertWay|InstituteforNewEconomicThinking&SmithSchoolforEnterpriseandtheEnvironment,UniversityofOxford,UKCameronHepburn|SmithSchoolforEnterpriseandtheEnvironment,UniversityofOxford,UKPleasedirectanycorrespondenceto:matthew.ives@smithschool.ox.ac.ukAcknowledgementsWeareverygratefultotheForeign,CommonwealthandDevelopmentOfficeforfundingthisprojectunderitsprosperityprogrammingandfortheongoingresearchsupportthatunderpinsthisreportfromtheOxfordMartinInstituteforNewEconomicThinkingandBaillieGifford.22AbstractAnanalysisofhistoricalcosttrendsofenergytechnologiesshowsthatthedecades-longincreaseinthedeploymentofrenewableenergytechnologieshasconsistentlycoincidedwithsteepdeclinesintheircosts.Forexample,thecostofsolarphotovoltaicshasdeclinedbythreeordersofmagnitudeoverthelast50years.Similartrendsaretobefoundwithwind,energystorage,andelectrolysers(hydrogen-basedenergy).Suchdeclinesaresettocontinueandwilltakeseveraloftheserenewabletechnologieswellbelowthecostbaseforcurrentfossilfuelpowergeneration.MostmajorclimatemitigationmodelsproducedfortheIPCCandtheInternationalEnergyAgencyhavecontinuallyunderestimatedsuchtrendsdespitethesetrendsbeingquiteconsistentandpredictable.Byincorporatingsuchtrendsintoasimple,transparentenergysystemmodelweproducenewclimatemitigationscenariosthatprovideacontrastingperspectivetothoseofthestandardmodels.ThesenewscenariosprovideanopportunitytoreassessthecommonnarrativethataParis-compliantemissionspathwaywillbeexpensive,willrequirereducedenergyreliabilityoreconomicgrowth,andwillneedtorelyontechnologiesthatarecurrentlyexpensiveorunprovenasscale.Thisresearchprovidesencouragingevidenceforgovernmentsthatarelookingforgreaterambitionondecarbonisingtheireconomieswhileprovidingeconomicgrowthopportunitiesandaffordableenergy.Thisreportshouldbereferencedas:twagenL.,Tillmann-Morris,L.,Wang,T.,Way,R.&Hepburn,C.2021.Anewperspectiveondecarbonisingtheglobalenergysystem.Oxford:SmithSchoolofEnterpriseandtheEnvironment,UniversityofOxford.ReportNo.21-04.33Contents?Anewperspectiveondecarbonisingtheglobalenergysystem:Summary7?Introduction13Changingthe‘policymoodmusic’14Howtoreadthisreport–aroadmap15?Section1:Howmodelsinformdecision-makingonclimate17Understandingthecostsandconsequencesofclimatechange17Howclimatemitigationscenariosaredeveloped18Therangeofscenariosmodelled20Opportunitiesforimprovement22Howaredecision-makerscurrentlyusingclimatemitigationscenarios?24Settingclimatetargets,plans,policies,andstrategies25Otherusesofclimatemitigationscenarios29?Section2:Empiricaltechnologicalprogresstrendsandtheneedforafreshlookatthefuture30Newcleanenergyopportunities30Historicaldevelopmentofenergysystemreporting33Howhavescenarioschangedovertime?35Historicaltechnologycosttrends37Technologycostforecasting39Modellingtechnologicalchange42Assessingmodelcostforecastsandprojections42Whatcausestheprojectionstogosowrong?44Improvingtheestimationoftechnologycosts46?Section3:Aprobabilistictechnologicalchangemodelforestimatingthecostoftheglobalenergytransition48Introduction48ThePTECEnergySystemModel49Asimpleandtransparentmodelforforecastingtechnologicalchangeintheglobalenergysector49ComponentsofthePTECmodel51Energysystemomissions52Primary,final,andusefulenergy52DeployingtechnologiesinthePTECModel53Experienceexponentsacrosstechnologies53Theuncertaintyoffuturecosts54Managingtheintermittencyproblem554455ThetwoPTECenergytransitionscenarios56ConstructingascenarioinPTEC56TheStalledandDecisiveTransitionScenarios57TheStalledTransitionscenario57TheDecisiveTransitionscenario59?Section4:ComparingouremissionscenarioprojectionswiththeIEAandIPCCscenarios,to2040andbeyondIntroduction6060EquilibratingPTECscenarioswiththoseoftheIEAandIPCCAcomparisonwiththeIEAemissionsscenarios62BackgroundontheIEAWorldEnergyOutlook62Primaryenergydemand63Finalenergydemand,andelectricitygenerationin204065Changeinfinalenergyconsumptionbyscenario67CostperMWhbytechnologyacrossscenarios68Annualemissionsbyfuel69TotalglobalenergysystemcostcomparisonComparisontoIPCCfutureemissionsscenariosTheIPCCScenarioMatrixComparingthePTECandIPCCemissionsscenarios72?Section5:ThebarrierstoadecisivetransitionandtheopportunitiespresentedbythisresearchIntroduction7373Barrierstoadecisivetransition73Mainstreamclimatemitigationmodels73Navigatingthesocio-technicaltransitionThe“just”transition,genderandinclusiveness,andenergyinsecurityTransitionrisksandstrandedassets78Regionaldifferencesinthecostsoftechnologies79Energysecurityandtheintermittencyproblem80Isaninterimsolutionrequired?CompetitionfromfossilfuelsTheopportunitiespresentedbytheDecisiveTransition82PTEC’sconservativeassumptionsaboutcostsandtechgrowth82Theempiricalevidence82Amethodologyforincorporatingprobabilistictechnologicalchange83?Section6:ConclusionsTheImplicationsofthiswork8585ExpectationsaroundtheoverallcostoftransitiontoaParisCompliantScenario85Expectationsaroundthespeedoftransition86NationallyDeterminedContributions(NDCs)86Expectationsaroundthemake-upofenergytechnologiesinthefuture86Expectationsaroundthetransitionrisk8766Concludingremarks88Currentenergytransitionmodelsareimportant,butthereisspaceforawiderview88Newcollaborativethinkingisneededarounddeliveringadecisivetransition88Muchworktobedone,butthefuturelooksmuchbetter88?AppendixA:ClimatemitigationmodelsandauthoritiesClimateimpact,mitigation,andadaptationmodels8989ThekeyauthoritiesthatproducescenariosTheIPCC92TheIEAWorldEnergyOutlookandenergytechnologyperspectives93Othersourcesofscenariosandclimatemitigationmodelling93Otherusesofclimatemitigationscenarios96Determiningrisks,regulations,andrecommendations96Determiningadaptationrequirements98Litigation99Assessingthecostsandbenefitsofproposedprojects99?AppendixB:additionalPTECmodeldetailsEndogenoustechnologicalchange100100Wright’sLaw100ApplyingWright’sLawtorenewabletechnologiesSubstitutingtheseinwegetourfinalequation:SolvingforaCostPathForecastingaccuracy:meanversusmedianExperiencecurvesforfossil-fuelsLevelisedcostofenergyandvintagesofcapitalstock?AppendixC:CreatingthePTECemissionscenariosIntroduction105CalculatingtheemissionsfromtheglobalenergysystemEquilibrationwithIEA2018emissionsIEAfullscenariocomparisonsEquilibrationwithIPCCemissionsin2018TheScenarioMatrixarchitectureAccountingformissingnon-energysectorcomponentsCalculatingradiativeforcingandglobalwarmingforeachscenario?AppendixD–EstimatesofphysicalclimatedamagesClimatedamagesanalysisresultsTheFUND-HectormodelScenariosanddata?Glossary121?References126Anewperspectiveondecarbonisingtheglobalenergysystem●SummaryforPolicymakersArigorousanalysisofthehistoricalcosttrendsofenergytechnologiesshowsthatthedecades-longincreaseinthedeploymentofkeyrenewableenergyandstoragetechnologies(e.g.,solar,wind,batteries,andhydrogen)hasgonehand-in-handwithconsistentsteepdeclinesintheircosts.Forexample,thecostofsolarPVhasdeclinedbythreeordersofmagnitude(morethan1000-folddecrease)asithasbecomemorewidelydeployedoverthelast50years–decliningsomuchthattheInternationalEnergyAgencyrecentlydeclaredsolarPVincertainregions“thecheapestsourceofelectricityinhistory”(IEA,2020).Suchcostreductionsaretheconsequenceofexperiencegainedindesign,manufacture,finance,installation,andmaintenance–andtheoverallpatternofdevelopmentishenceknownasthe‘experiencecurve’.Incontrast,non-renewableenergytechnologieshaveseennosignificantdeployment-relatedcostdeclinesoverthelast50years.Thecostofelectricityfromcoalandgashaslargelyremainedsteady,fluctuatingbylessthananorderofmagnitude.Theaveragecostofnuclearelectricityhasevenincreasedoverthissameperiod,partlyinresponsetosafetyconcerns.Theselong-termtechnologycosttrendsappeartobeconsistentandpredictable(Farmer&Lafond,2016;McNerneyetal.,2011).Alongsideadvancesinthetechnologiesthemselves,wehaveseenadvancesinourunderstandingofhowtechnologicalchangeunfoldsintheeconomymorebroadlyandofthecharacteristicsthatfast-progressingtechnologieshaveincommonwitheachother(Wilsonetal.,2020).Severalnewmethodsthatarestatisticallyvalidatedandfirmlygroundedindatahavebeendevelopedforforecastingtechnologicalprogress(Nagyetal.,2013;Wayetal.,2019).Incorporatingtechnologycosttrendsintoasimple,transparentenergysystemmodelhasproducednewclimatemitigationscenariosthatstarklycontrasttothosecurrentlyproducedfortheIPCCandtheInternationalEnergyAgency(IEA).Itmaycomeasasurprisethatinmostmajorclimatemitigationmodels,suchastheIPCC’sIntegratedAssessmentModels(IAMs),thecostsofenergytechnologiesarenothandledverytransparently.Theyassumeunsubstantiatedlimitstocostdeclinesandoftencontainout-of-datedata(Jaxa-Rozen&Trutnevyte,2021;Kreyetal.,2019).WeuseanalternativeapproachtoexploretheimplicationsofthesediscrepanciesandhavefoundanexcitingnewdecarbonisationscenariowehavenamedtheDecisiveTransitioninrecognitionofthecommitmenttoacleanenergysystemthatthisscenariorepresents.77Generatingcosts/LCOE(2020$/MWh)Energy(Gtoe)Generatingcosts/LCOE(2020$/MWh)Energy(Gtoe)????Anovelapproachtoenergysystemsmodelling–accountingtransparentlyforthereal-world,historicalcosttrendsofrenewableenergytechnologies–indicatesthatthedecarbonisationoftheglobalenergysystem:?IslikelytobecheaperthancommonlyassumedGeneratingcosts/LCOE(2020$/MWh)Energy(Gtoe)Generatingcosts/LCOE(2020$/MWh)Energy(Gtoe)????Anovelapproachtoenergysystemsmodelling–accountingtransparentlyforthereal-world,historicalcosttrendsofrenewableenergytechnologies–indicatesthatthedecarbonisationoftheglobalenergysystem:?IslikelytobecheaperthancommonlyassumedMaynotrequireanydeclinesineconomicgrowthCanbeachievedwithoutlargeinvestmentsinunprovenandpotentiallyexpensivetechnologies●TheproblemOurenergysystemsmodelisbuiltonobservedtrendsintherelationshipbetweentherateofdeploymentandthecostofenergytechnologiessuchassolar,wind,batteriesandhydrogen.Averageglobalsolarphotovoltaiccosts 198019902000201020202040ActualPredictedrange(95%)Medianofrange2001200420082009201020132014152016201820192020Actual(IEAWorldEnergyOutlook2001-2020,Nemet2006,andIRENA2020)Globalfinalenergymix2020202520302035204086420504030200Rightaxes:Emissions(GtCO2)5086420OtherrenewablesBioenergyHeatElectricityNaturalgasOilCoalCO2emissions4030200DecisiveTransitionscenarioOurDecisiveTransitionscenario:?????2%p.a.usefulenergygrowth(>3.4%p.a.economicgrowth)Noexpensivelarge-scaleCCSrequiredRapidphase-outofallfossilfuelsLargeefficiencygainsfromelectrificationElectricitypricesareverylikelytofallEmissionsaremorealignedwithParisgoals?????AnewperspectiveondecarbonisingtheglobalenergysystemExistingenergysystemmodelshaveconsistentlyunderestimatedthecostreductionsandgrowthpotentialofkeyrenewableandenergystoragetechnologies.Averageglobalsolarphotovoltaiccosts1980199020002010202020302040(BasedonWayetal.2020)GlobalfinalenergymixSustainableDevelopmentScenarioTheIEA’sSustainableDevelopmentScenario(IEAWorldEnergyOutlook2019):3.4%p.a.economicgrowthRequiresexpensivelarge-scalecarboncapture&storage(CCS)KeepscoalthroughCCSretrofitsSomeelectrificationbenefitsElectricitypricesunlikelytofallEmissionsarelessalignedwithParisgoals●Ourresponse 2020202520302035204088Thisscenarioiscreatedbyselectingdeploymentratesfornewenergytechnologies,basedontheirhistoricaltrends,andallowingsuchtrendstocontinueforaroundadecadebeforetaperingoff.TechnologycostsarethensimulatedhundredsofthousandsoftimestogenerateprobabilisticforecastsbasedonthemethodologypublishedbyFarmer&Lafond(2016).TheseprobabilisticcostforecastsaregeneratedforthevariouskeytechnologiestomodelalowercostevolutionoftheenergysystemthathasyettobeexploredbythemajormitigationmodelsoftheIPCCandIEA.Thisnewperspectivesuggestsareassessmentisdueregardingthepotentialcostandpaceoftheglobalenergysystem’stransition.Atpresent,policymakersusuallyassumethatthetransitionoftheenergysystemtoaParis-compliantemissionspathwaywillbeexpensive;thatitwillrequireanetreductionintheprovisionofenergyservicesoreconomicgrowth;andthatitwillrelycriticallyontechnologiesthatarecurrentlyexpensive,unproven,orpotentiallycontroversial–suchascarboncaptureandstorage(CCS),second-generationbiofuels,andnewnuclearenergydesigns(e.g.,smallmodularreactors).Inthisreport,wepresenttwocontrastingscenariosthatillustratehowproperlyaccountingfortechnologicalcosttrendscanchallengecommonperceptionsregardingthecostsandbenefitsofaDecisiveTransitiontocleanenergytechnologies.Themodellingpresentedinthisreportcontraststwoverydifferentscenarios:aStalledTransition,inwhichtotaldemandforenergyservicescontinuestogrowatitshistoricalaverageof2%peryear,butwiththeratiosofthedifferentenergytechnologiesfrozenattheircurrentvalues.Thisscenarioprovidesauseful‘worst-case’baselineandacounterfactualforestimatingrelativecosts.ThesecondscenarioisaDecisiveTransitioninwhichcurrentexponentialgrowthratesincleanenergytechnologiescontinueforthenextdecade,thengraduallyrelaxbacktothelowsystem-widerate.Hereweseethatwithin25years,fossilfuelsaredisplacedfromtheenergysector,withallessentialliquidfuelusereplacedby“green”hydrogen-basedfuels.Solarandwindprovidemostoftheenergy;transportandheataremostlyelectrified;andreliableelectricityismaintainedusingbatteriesandchemical-basedenergystoragetechnologies.Toprovidealike-for-likecomparisonwiththeStalledTransition,usefulenergyalsogrowsat2%peryear,aratemuchhigherthaninotherdeepdecarbonisationscenarios.OurDecisiveTransitionachievesalmostallthereductionsingreenhousegasemissionsnecessarytomatchthemostambitiousIPCCscenarios.Figure1presentstheglobalwarmingassociatedwiththeStalled(orange)andDecisiveTransition(purple)scenarioscomparedtothreekeyIPCCwarmingscenarios.OurStalledTransitionscenarioismostcloselyalignedwithwhatisregardedasthe‘worst-case’IPCCscenario(SSP5RCP8.5).TheDecisiveTransitionismostcomparabletotheSSP1RCP2.6highmitigationambition“TakingtheGreenRoad”scenario.Thisisaremarkableoutcomebecause,incontrasttothehighambitionIPPCscenarios(SSP1RCP1.9andSSP1RCP2.6),theDecisiveTransitionscenarioachievesthisresultwithoutreducingnon-energy-basedemissions;withoutanysignificantdeploymentofnuclear,carboncaptureandstorage,orenergy-savingtechnologies;andwithoutrequiringareductioninenergydemandoreconomicgrowth.Itismerelyaresultofextendingthecurrenthighgrowthratesindeploymentofcleanenergytechnologiesforanotherdecade.99Globaltemperatureanomaly(degreesGlobaltemperatureanomaly(degreesCabovepre-industrialaverage).54.03.53.02.00.50200020202040206020802100StalledTransitionSSP5baselineDecisiveTransitionSSP1RCP2.6 ActualsFigureFigure1:ComparisonsofTemperatureAnomaliesfromtheestimatedglobalemissionsoftwoPTECscenariosStalledandDecisiveTransitionandthreeIPCCscenariosSSP5-TheDecisiveTransitionissignificantlycheaperthantheStalledTransition.Themodellingshow-casedinthisreportsuggeststhatacleanenergysystemcouldbetrillionsofdollarslessexpensivetoengineerthancontinuingwiththecurrentsystembasedonfossilfuels(Wayetal.,2020).Thisisevenwithoutfactoringinpollutionandassociatedmorbidityandmortality(Vohraetal.,2021),orthemultitudeofadditionalphysicalclimatecostslikelytoresultfromhigherlevelsofglobalwarming(Arnelletal.,2019).Intheshort-andmedium-term,situationsmayarisewhererenewablescannotcheaplymeettheenergydemandsofcertainregions.Inthesesituations,argumentsmightbemadeforinvestmentininterimfossil-fuel-basedsolutions,suchasnaturalgas.However,itshouldbekeptinmindthatsuchinvestmentsmaynotcontributetothefinaltransitionandcaninsteadleadtocarbonlock-inandcreateadditionaltransitionrisk.Foreignaidshouldbealignedtoenabledevelopingstatestoinstead“l(fā)eapfrog”toelectrificationandnewcleanelectricitygeneration,loadbalancing,andstoragetechnologies.Unlikemostotherambitiousscenarios,theDecisiveTransitionscenariodoesnotrelyonunderdevelopedtechnologies,suchascarboncaptureandstorage(CCS)andBioenergywithCCS(BECCS).ThisraisesquestionsaboutwhetherweshouldcontinuechannellinginvestmenttowardstechnologieslikeCCSandnuclearfusionforenergyprovision.Neithermaymixparticularlywellwithrenewablesandwilldetractinvestmentawayfromdrivingdowncostsinrenewablesandstoragetechnologies.ItisstillvitalthatwecounterinstitutionalandsocialbarrierstoaDecisiveTransition,thatfinancialstabilityismaintained,thatgenderandsocialequalityismaintainedorimproved,andthatjoblossesinthefossilfuelindustriesareaddressed.TheIEAhasshownthepotentialforrenewablestoprovidefarmorejobsthanotherenergy-relatedinvestments(IEA,2020),butthesejobsmaynotbecreatedintheareaswherecoalminesarebeingclosed.Industrialstrategieswillthereforeneedtobedevelopedtocountersuchtransitionrisks.Effortstomaintainorimprovegenderandsocialequalityshouldbeprioritisednowtoavoidperpetuatingexistinggenderinequalities(Pearl-Martinez&Stephens,2016).Socialequityconcernsalsogowellbeyondtheimplicationsforcoalminersandincludecommunitiestiedtocoal-firedpowerstationsandcommunitieslinkedtooilextractionandrefinement(Carley&Konisky,2020).Countrieswithhighrelianceoncoal-firedenergywillalsorequireinternationalsupportinestablishinggridbalancing,storage,andefficientpowermarketstoenablehigherrenewablepenetration.nsitionrisksarerealandlikelygivenhowrapidlytechnologicaltrendsaremovingbutitmustberememberedthat,unlikephysicalclimaterisks,strandedassetsareonlyaone-offcost.Ifwedonotendclimatechange,themorefrequentanddamagingextremehurricanes,floods,droughts,andwildfiresarelikelytocausefargreatereconomiccoststhatwillbeconstant,long-term,andpotentiallypermanent.OurestimatesshowthecostsofclimatedamagesuptotheendofthecenturyfromaStalledTransitionareatleasttentimesgreaterthananytransitionriskassociatedwiththeDecisiveTransition.Insummary,theDecisiveTransitionscenarioindicatesthatthedecarbonisationoftheglobalenergysystem:?Islikelytobecheaperthancommonlyassumed.Maynotrequireanydeclinesineconomicgrowth.Canbeachievedwithoutlargeinvestmentsinunprovenandpotentiallyexpensivetechnologies.Hasthepotentialtosavehundredsoftrillionsofdollarsinphysicalclimatedamages.Thisnewperspectivealsosuggeststhatrenewabletechnologieslikesolarandwindcanprovideasteadyandsecureenergysupply,rebuttingcommonbeliefsregardingtheintermittencyproblemswithrenewables.Thereisabeliefthatthelarge-scaledeploymentofrenewablesintheglobalenergysystemwillleadtoenergysupplyfailuresandhighgridintegrationcostsinthefuture.Ourmodelchallengestheseperceptionsbycoup