The International Energy Agency reiterated last year’s bombshell call to halt new oil and gas projects at the release of its annual energy outlook today.
All oil and gas exploration projects need to be stopped to achieve net-zero emissions by 2050, which is considered a prerequisite to limit global warming to 1.5C as per the Paris accords, the IEA said at the time. Crucially, existing reserves of fossil fuels are sufficient to meet global energy demands, it said.
The shock announcement by the historically pro-fossil fuel body made waves as it challenged industry assumptions that continued investment in oil and gas was essential for energy security and consistent with global climate goals.
Speaking today, the IEA stood by its conclusions but warned of a host of new challenges due to Russia’s increased isolation from the global economy. Under its scenarios, achieving climate goals now implies a reliance on a smaller group of suppliers, particularly members of OPEC, whose share of the oil supply is projected to rise from 35 percent in 2021 to 52 percent in 2050.
“Meeting this condition comes with consequences that countries need to consider carefully, especially in a world marked by geopolitical tensions,” said the IEA. “It cannot be taken for granted that importers will be comfortable with such a concentration in supply.”
The Russian invasion also has the potential to become a “historic turning point” in favour of clean energy, the agency said, due to unprecedented public spending on renewables to make up for the shortfall in energy exports. It predicted that demand for fossil fuels could taper off for the first time on record in 2030.
It added that the invasion of Ukraine could herald the end of rapid growth in natural gas demand due to higher near-term prices, rapid deployment of energy efficiency measures and renewables, and a switch towards coal in some cases. However, the bulk of the reduction in demand for gas is expected to be due to a switch to clean energy.
“The global energy system is going through major turmoil which I consider to be the first truly global energy crisis, and comes during a period of major geopolitical upheaval,” said IEA chief Fatih Birol. “We believe that reaching 1.5C is getting more and more challenging but is still achievable.”
The assumptions will be incorporated into the IEA’s three influential climate scenarios, including one aligned to 1.5C. The scenarios model the policies, investments and business strategies associated with a particular energy pathway. They are seen as the “gold standard” for business planning and shape future expectations on coal, oil and gas.
Many of the climate scenario analysis tools used by investors to assess the resilience of their portfolios – such as 2DII’s freely available PACTA or those from Carbon Delta and Trucost – are based on the IEA scenarios. PACTA currently uses 2021 scenarios and will add the latest outlook in 2024, according to its current administrator, the Rocky Mountain Institute.
IEA scenarios are considered by practitioners to be more optimistic on the pace of the green transition, the extent of required carbon offsetting and energy demand levels compared to regulatory climate scenarios used by central banks to assess climate risks within the financial sector.
This is in line with an aim to reduce market volatility and economic impacts resulting from decarbonisation.
The IEA has come under scrutiny in the past for underestimating the growth of renewables and the magnitude of carbon emission reductions needed, which critics say has bolstered the case for continued investment into fossil fuels. Concerns have also been raised by NGOs and campaign groups over the influence wielded by fossil fuel lobbyists within the IEA.