The future of fossil fuels

As a part of the work Copenhagen Economics did for the Energy Transitions Commission, we analysed the role of fossil fuels in an energy system compatible with limiting global temperature increases to well below 2 °C.

The Energy Transitions Commission (ETC) is made up of a broad coalition of stakeholders from the public, private and social sectors with the aim of accelerating change towards low-carbon energy systems that enable economic development, while limiting the rise in global temperatures to well below 2 °C.  To enable this, the ETC wanted to provide an objective fact-base and set of insights to inform decision-makers.

The work of the ETC focuses on four transitions strategies. One of these examined the role of fossil fuels in a transition to an energy system consistent with well below 2 °C.

We drew on virtually all available scenarios that study the demand for fossil fuels up to 2040 and beyond to characterise three archetypical demand trajectories for coal, oil and gas. We combined this top-down approach with two bottom-up models: a model of the global oil and gas markets based, and a model of global energy demand to explore the implications of these fossil fuel trajectories for producers, consumers and investors.

The study found that meeting a 2 °C objective implies a sharp and immediate fall in coal; a 2020s peak and decline for oil; and no or little growth in natural gas. Fossil fuels will still provide 60% of energy in 2040, compared to 85% today, but the pattern of use will change, away from coal and towards gas, and  increasingly concentrated in industry.

Fossil fuel prices would be lower in a 2˚C scenario, with less need to mobilise high-cost reserves to meet demand. However, additional investment in oil and gas will still be required. Even in a 2˚C scenario, the majority of hydrocarbon supply in 2040 would come from new developments.

Carbon capture plays a major role in pathways to limit warming to 2˚C. However, carbon capture faces large barriers, and there may be other solutions: bioenergy, process change, and hydrogen in industry; renewable energy in power; and different forms of “negative emissions” technologies.

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