Tatsuya Terazawa Chairman and CEO The Institute of Energy Economics, Japan
Message for November 2022
Last month, IEEJ released its newest global energy outlook for 2050. The “IEEJ Outlook 2023”, which is a “forecast based outlook”, presents very different energy perspectives for the future than those used for “back-cast based outlooks”. With a different outlook, several important implications could be drawn.
<Major Points of the “IEEJ Outlook 2023”>
1. The “IEEJ Outlook 2023”: A forecast based outlook
IEEJ has been issuing long-term global energy outlooks for nearly 20 years and its annual energy outlook is one of the very few prepared by an independent research institute. This latest outlook provides for a picture of the global energy supply and demand towards 2050 under two scenarios: the Reference Scenario and the Advanced Technologies Scenario (ATS). The latter assumes the maximum introduction and penetration of energy and environment technologies, based on best expert judgments. The IEEJ outlook is a forecast based outlook that projects into the future under various assumptions, starting from the present. It contrasts to a back-cast type analysis which starts from desirable goals set in the future and works backwards to develop “a” path to reach the goals from the present. Of course, these two distinct approaches produce very different paths and different prospects. The back-cast type analysis highlights the need for additional policy initiatives to reach a certain goal, while the forecast type analysis shows where investment is needed to meet a future energy demand. It is important to clearly understand the aspirations of a back-cast type analysis, but it is also indispensable to be prepared to meet the reality of a forecast type analysis. I hope the readers would see the significance of IEEJ Outlook 2023 in this regard.
2. Energy-related CO2 emissions in 2050: Still at half the level of today
Even in the ATS scenario, energy-related CO2 emissions in 2050 are expected to be still at around half the level of today, very close to the results of the Announced Pledges Scenario (APS*), issued by IEA in November 2021 estimating the CO2 emissions when countries’ stated policy goals, including COP 26 pledges, are realized. While the OECD countries will get closer, albeit not quite, to carbon neutrality by 2050, the non-OECD countries will be emitting the bulk of the remaining CO2 emissions.
This outlook re-emphasizes the need to help the decarbonization in the emerging and developing economies. The emissions reductions must be realized while supporting the expected strong economic growth in these regions. Transfer and deployment of energy efficiency technologies and low carbon technologies (beyond the ATS) from the advanced economies to these economies will be vital. The outlook also highlights the necessity to expand negative emission technologies such as DACCS and nature based negative emission measures such as forestation and blue carbon. We cannot get closer to carbon neutrality without negative emission measures.
3. Fossil fuels will play important roles. Hard-to-abate sectors need to be decarbonized.
In the ATS, 60% of the energy will be supplied by fossil fuels in 2050, 20% of which will be decarbonized with CCS. The industrial and the transportation sectors will remain the major emitters of CO2. This outlook reminds us of the need to decarbonize these hard-to-abate-sectors.
4. Demand for natural gas and LNG will be larger. Steady investment is required.
Among fossil fuels, in the ATS, the demand for pipeline natural gas and LNG will continue to grow until around 2040 and start to decrease gradually thereafter. The level of demand for natural gas and LNG will be 14% and 13% higher respectively in 2050 compared with their levels in 2020.
Natural gas and LNG can help reduce CO2 emissions of the emerging and developing economies by reducing their dependence on coal, while supporting their strong economic growth and rising living standards. They can provide the important dispatchable power to respond to the intermittency of the growing renewable energies. They can also be used to produce blue hydrogen and ammonia in the future. The current high prices for natural gas and LNG are expected to stabilize over time with added upstream capacity, more efficient use of energy and diversification to other types of energy. This prospect is based on the thinking that investment and financing of energy and climate initiatives do not preclude natural gas and LNG. I would like to stress the need to avoid policies restricting or discouraging financing natural gas and LNG related projects. Such restrictions could lead to higher energy prices in the future and might encourage the continued use of coal in the emerging and developing economies, which would be detrimental to the global environment. There must be steady investments for natural gas and LNG to ensure a smooth transition to carbon neutrality and safeguard the affordability of energy.
5. Demand for critical minerals/materials will grow substantially. The sustainability of critical minerals/materials must be considered.
As the world accelerates its clean energy transition, more solar panels, wind power turbines, batteries and EVs will be produced. This will certainly result in a dramatic increase in the demand for critical minerals/materials. In fact, in the ATS, the demand for nickel and lithium is expected to grow by three and ten times respectively by 2050. The annual demand could be greater than the annual supply for nickel and lithium by the mid-2030’s and by early 2030’s respectively. For nickel, the cumulative demand will exceed the sum of known reserves and recycled supplies.
In addition, the supply of these critical minerals/materials will be dominated by a limited number of countries. The concentration of supplies is much more serious for the processing than for the mining. The Outlook provides an overview of the prospects for a larger range of critical minerals. It shows the urgency of addressing supply shortage on an annual basis as well as the likelihood of long-term structural shortage of supply from reserves and recycling. The picture shows the year in which eight of the critical minerals’ (i.e., Co, Dy, Nd, Li, Ni, V, C, and Pt) annual demand exceeds annual supply by 2050 while the remaining four critical minerals will be in tight supply-demand after 2050. The picture also shows that two critical minerals’ (i.e., Co and Ni) cumulative demand exceeds total reserves plus recycled supply. It also highlights the critical materials dependance on high or low concentration of suppliers.
This picture stresses the need to not only expand the supply of a number of critical minerals but also the need to diversify the source of supplies. We absolutely need more investment. We must develop and introduce new technologies to be more efficient in the use of these minerals/materials and must also develop alternative materials. Recycling efforts must be strengthened drastically. If we care about the sustainability of our environment, we must also be conscious of the need to ensure sustainability of the critical minerals/materials. The pursuit of carbon neutrality with massive utilization of batteries and other clean energy technologies will not justify the limitless consumption of critical minerals/materials. In the design and deployment of clean energy technologies, we must choose the mix of technologies which would reduce CO2 emissions while keeping the consumption of critical minerals/materials to as low as possible. I intend to highlight this point in future Chairman’s Messages.
For those who are interested in the Outlook in more detail, please refer to the following URLs:
Executive Summary of IEEJ Outlook 2023 https://eneken.ieej.or.jp/data/10599.pdf
Excel Dataset of IEEJ Outlook 2023 https://eneken.ieej.or.jp/en/data/Annex_en_20221014.xlsb
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