Extreme weather events that seem to occur with alarming regularity and the heavy toll it inflicts on physical and human capital have pushed climate change to the forefront of public policy discourse. Governments have been throwing their weight behind green policies in order to achieve net zero carbon emissions by as early as 2050.
The future is electric
Indeed, decarbonisation is the order of the next few decades. Weaning the global economy of a debilitating carbon addiction is vital to avert an outright climate disaster. The good news is there are viable energy alternatives. In a net-zero future, renewable energy technologies like solar and wind will be critical for power generation while carbon-free electricity will likely become the main energy carrier of choice.
The International Energy Agency (IEA) projects electricity to account for about 50% of all final energy use in 2050, up from a paltry 20% in 2020 (Chart 1). Meanwhile, the agency also expects the global economy to shift well away from fossil fuels by 2050, with renewables accounting for nearly 90% of electricity generation (Chart 2).
Chart 1: The share of electricity in final energy use is expected to jump from 20% in 2020 to 50% in 2050, in the path to net zero.
Source: International Energy Agency (2021), Net Zero by 2050, IEA, Paris. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realised. *Carbon Capture, Usage and Storage. ** Photovoltaic.
Chart 2: Renewables are expected to account for the bulk of electricity generation by 2050.
Fuel shares in total energy use in electricity generation in the path to net zero
Source: International Energy Agency (2021), Net Zero by 2050, IEA, Paris. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realised.
Hey big spender
Already, governments around the world have pushed ahead, with varying degrees of success, the electrification of public transport systems, incentivising electric vehicle (EVs) adoption and modernising power grids. However, public spending alone may not be enough to achieve net zero outcomes by 2050.
After all, going green is not cheap, and the IEA expects spending on electricity systems – electricity generation, storage and distribution, and public EV charging – to near triple by 2030 if the world is to be on track to achieve net zero carbon emissions by 2050.
Such spending entails heavy investments in a more comprehensive network of EV charging stations and upgrading electric transmission and distribution grids to be more flexible to cope with the rising share of renewables such as wind and solar in electricity generation. In turn, power generating companies will have to ramp up wind and solar capacities by upgrading existing infrastructure or building new ones.
Moreover, the broad-based adoption of end-user carbon-efficient goods may sprout new sources of demand for support infrastructure which may itself spark a virtuous cycle of necessary investments.
Take EVs as an example. As the penetration of EVs improve with greater awareness, better incentives for substitution and more accessible charging networks, demand for electricity will likewise increase. This necessitates further spending to build out renewables, transmission networks and storage capacity so as to keep pace with the rise in demand for electricity and to ensure essential services remain uninterrupted in spite of greater usage. Better support infrastructure improves the convenience of using EVs which further encourages adoption and demand. In turn, this may stoke even more spending on infrastructure to support the increase in adoption and EV usage.
