The Speed of the Energy Transition

Key Quotes

Kingsmill Bond, New Energy Strategist at Carbon Tracker and coauthor of the report said "It is important for policymakers and energy incumbents to understand whether the energy transition will be gradual or rapid. This report sets out the key issues to watch over the course of the next decade to see which narrative will prevail".

Gradual or Rapid Energy Transition: What path are we on?

The energy industry is complex, and understanding the major trends changing the industry can be challenging. Investors, policy makers, business people, and other interested stakeholders require clear information about the evolution of the energy system to inform present decisions, which can have long lasting impacts.

A key issue for the 2020s is whether the energy transition will be gradual or rapid. A gradual transition means that we miss the goals of the Paris Agreement, but energy sector incumbents can continue to flourish. A rapid transition means we have a chance of hitting the goals of the Paris Agreement, but incumbents will be disrupted by the speed of change.

This paper provides a framework for navigating the mosaic of often conflicting scenarios for how the energy system is evolving, the implications for the fossil fuel sector and the road to Paris.

We sets out the four main areas of distinction between the two narratives:

What matters – stock or flow. Gradual advocates focus on total demand (stock) and argue that new energy technologies are relatively small and will take decades to overtake fossil fuels. Rapid advocates focus on change (flow), and argue that new energy technologies will soon make up all the growth in energy supply.
Technology growth – linear or exponential. Gradual advocates argue that new energy technologies are expensive and face insoluble economic or technical impediments to growth, meaning that growth rates will be only linear. Rapid advocates argue that solar and wind are already cheaper than fossil fuels for the generation of electricity and that EV are about to challenge the Internal Combustion Engine (ICE) on price, that the barriers to growth are soluble for the foreseeable future, and that these disruptive new energy technologies will continue to enjoy exponential growth. They anticipate the rise of new technologies such as green hydrogen which can lead to further waves of change.
Policy – static or dynamic. Gradual advocates argue that it is necessary only to model policies which we know will happen, that the forces of inertia are very powerful, and that policymakers will remain cautious and slow-moving. Rapid advocates argue the forces for change are considerably greater than those for inertia, and that technology opens up the opportunity for policymakers and regulators to design markets to better provide for all consumers’ needs. As the necessity for action becomes clear, so there will be an Inevitable Policy Response. Modelling only the existing policy environment has the impact of understating trends in policy making.
Emerging markets – copy or leapfrog. Gradual advocates argue that the emerging markets (including China) will broadly follow the path taken by developed markets and use more fossil fuels as they get richer and energy demand rises. Rapid advocates argue that the emerging markets will enjoy an energy leapfrog to new energy technologies and significantly less energy-intensive forms of economic development while providing critical improvements in the quality of life.

The note and below infographic identifies the signposts to help understand which path the world is following. Pass these and the Rapid narrative is on track. Fail to pass them and the Gradual narrative is playing out.

Background

This paper has been developed by the Global Future Council on Energy 2018-2019. Lead authors are Kingsmill Bond, Carbon Tracker, Angus McCrone, BloombergNEF, and Jules Kortenhorst, Rocky Mountain Institute. The paper includes input from other members of the World Economic Forum Global Future Council on Energy 2018-2019 (see members list at the end of paper) It is a draft paper for further discussion. The findings, interpretations and conclusions expressed are a result of a collaborative process facilitated and endorsed by the World Economic Forum, but whose results do not necessarily represent the views of the World Economic Forum, nor the entirety of its Members, Partners or other stakeholders, nor the individual Global Future Council members listed as contributors, or their organisations.