ERTC 2023
Which future? Using scenario analysis to explore national pathways to decarbonisation
David Hone on behalf of Shell Catalysts & Technologies
Innovation Wins Innovation Wins represents major energy resource holders such as the US and the UAE. These countries do not fear a lack of energy supply; however, they are vulner- able to political tensions and voter dissat- isfaction when energy prices, such as for gasoline, rise too high. In response, these countries would look to increase short-term oil and gas production while relying on low- carbon technologies in the long run. Great Wall of Change The Great Wall of Change generally describes China, a country resilient to sup- ply disruptions and price shocks. It has a strong economy, ample domestic energy reserves, and invests heavily in energy sup- ply systems. Additionally, China knows it must move away from fossil fuels, but will do so in a manner that does not risk its own national security. Surfers Surfers represent emerging economies, such as India (Emergent Surfers) and the world’s least-developed nations (Rising Surfers). They do not typically produce sig- nificant amounts of energy, which makes them vulnerable to both energy supply dis- ruption and price swings. However, Surfers are pragmatic – they understand the need to decarbonise but are unapologetic about their economic devel- opment targets. For this reason, they are happy to continue using fossil fuels at the same time as tran- sitioning to renewable energy. Additionally, Surfers would seek strategic partnerships with other archetypes and, in return, offer better access to mineral resources, thereby growing markets and labour. What does the future hold? We do not have a crystal ball, but that does not stop us from exploring what the future may (or may not) look like. Using scenario modelling, Shell examines how nations may respond to the energy transition and two possible futures that may emerge as a result: Archipelagos and Sky 2050 (see Figure 2 ). Archipelagos: Security through self-interest The Archipelagos scenario describes a possible future in which the energy secu- rity mindset has become entrenched, and nationalism and protectionism dominate. International competition and technol- ogy races pitch nations against each other as the race to secure energy resources and build resilience against future shocks intensifies. As a result, the geopolitical landscape more closely resembles the 19th-century world of power alliances than post-Cold War globalisation. This leads to global agreements, such as the Paris Agreement on climate change, fad- ing in prominence. Although this scenario involves a sig-
In 2021, world leaders gathered for COP26 in Glasgow to reaffirm the global com- mitment to achieve the goals of the Paris Agreement and limit global warming to no more than 1.5°C above pre-industrial levels. However, Russia’s invasion of Ukraine soon after upended the geopolitical landscape, quickly shifting focus from national climate policy to securing primary energy resources. With the world relying on fossil fuels for 80% of its primary energy,¹ this inevitably led to a scramble for oil, natural gas and coal. With short-term energy security issues firmly back at the top of national agendas, where does this leave the global energy transition? Furthermore, how will countries balance the competing forces of securing enough affordable energy while trying to align emissions reductions with national targets under the Paris Agreement? Driving change in a troubled world The global energy system is going through the biggest upheaval since the 1970s when geopolitical tensions sent supply and price shockwaves around the world. Today, the reshaping of the energy system is the result of three key drivers. First, with global energy demand con- tinuing to rise, the world has entered a period of potentially extreme price volatil- ity. Ongoing sanctions against Russian oil and gas – which account for over 10% and 17% of global production, respectively,² , ³ – have amplified supply-side pressure, send- ing many countries, including those across Europe, rushing to secure alternative pri- mary energy sources. As a result, many countries are seeing a growth in resource nationalism as they adopt short-term, uni- lateral action to secure reliable and afford- able sources of energy. Second, the impacts of climate change are already being felt by many around the world. Energy consumption accounts for more than 85% of global carbon emis- sions;⁴ therefore, to move the needle on global emissions and mitigate the worst impacts of climate change, the world needs co-ordinated, long-term global action that accelerates the development and deployment of lower- and zero-carbon sources of energy. Third, the deployment of renewable energy technologies, such as wind, solar
Green D ream Rapid shift from oil and gas and reduced energy demand
Great W all of C hange A China-led low-carbon infrastructure push
Inovation W ins New solutions with rapid commercialisation
Emergent
Rising
Surfers Riding the waves of opportunity
More able to endure
Less able to endure
Reaction to price volatility
Withstanding supply disruption
Figure 1 Four evolving energy transition archetypes, each with a different pace of
Second, against the backdrop of increas- ing energy demand, the world is con- fronted with a quickly diminishing carbon budget, which means that to keep global warming to within 1.5°C, there is only a finite amount of carbon dioxide (CO₂) that can be released into the atmosphere – the world is on course to exhaust this budget in less than 10 years. This leaves the world needing to find a way to decouple economic growth, bet- ter living standards, and rising demand for energy from increasing levels of carbon emissions. How will nations respond? The response of nations to the energy tran- sition is unlikely to be uniform. Instead, countries will likely form like-minded blocs that follow different paths driven by eco- nomic, energy, and geopolitical needs. As a result, Shell envisages the emer- gence of four key national archetypes: Green Dream, Innovation Wins, Great Wall of Change, and Surfers (see Figure 1 ). Green Dream Green Dream describes countries, such as those in Europe, that are vulnerable to energy supply disruptions yet wealthy enough to cope with energy price shocks. These countries seek security by driving hard to reduce energy demand and shifting rapidly away from fossil fuels. THE CHOICE IS OURS Our scenarios offer a glimpse of two possible futures, but which future would you prefer to live in? One of self-interest and national isolation? Or one of mutual interest, in which countries compete but nevertheless work together to create a world where everyone can prosper? Neither Archipelagos nor Sky 2050 is a certainty. Instead, our destination will be defined by the path we take – and that choice is ours.
PV, and batteries, is gathering pace, with renewables expected to account for more than 90% of global electricity capacity expansion over the next five years, sur- passing coal as the world’s largest source of electricity generation by 2025. 5 DID you know? in response to the energy transition, countries will likely
form like-minded blocs that follow different paths
Two competing dilemmas Amid the evolving landscape of the global energy system and geopolitical priorities, two competing dilemmas are apparent. First, least-developed nations around the world are striving for a better quality of life, and key to this is access to high-qual- ity, affordable energy – as much as three times more energy per person than today. With the population of the least-developed nations expected to more than double by 2070 to more than four billion people, the demand for extra energy is set to soar.
Explainer: Shell’s energy security scenarios Shell’s scenarios are an exploration of how the world could possibly evolve under differ- ent sets of assumptions. They are constructed using models that are informed by data and current technolo- gies that we know work and contain insights from leading experts. Scenarios are modelled as an aid to making better decisions. While some of the pos- sible futures we envisage may seem unlikely or even surprising, their objective is to stretch minds, broaden horizons and explore assumptions. It is important to note that our scenarios are not expressions of Shell’s strat- egy, business plan or what we think the future will be. Instead, they help our sen- ior management think about long-term challenges that Shell and the wider world could face.
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