Renewable energy
4 Quantifying the implications of investing in renewable energy
To assess the implications of increasing investments in greening the world economy, including greening the energy sector, the Millennium Institute (MI) conducted a quantitative analysis based on its Threshold 21 national model (T21) adapted for the purpose of the global Green Economy Report (T21-Global). Described in more detail in the modelling chapter, T21-Global is a system dynamics model of the global economy in which the economic, social, and environmental spheres interact with each other.
This modelling exercise covers both energy supply and demand. Energy supply is broken down into electricity and non-electricity. It includes a variety of fossil-fuel sources as well as nuclear, biomass, hydro and other renewable sources. Fossil-fuel production is based on stocks and flows, including discovery and recovery processes. Fossil-fuel prices are endogenous in the model, i.e. determined as a result of the interactions between the forces of supply and demand considered within the model. Energy demand is determined by GDP, energy prices, and technology (i.e. level of energy efficiency), and is disaggregated by source according to the IEA classification. In the model, GDP is also dependent on energy demand, which implies a feedback mechanism that plays an important role in the various scenarios.
The scenarios modelled for the next few decades up to 2030 and 2050 include: 1) business-as-usual (BAU), which is based on the historical trajectory and assumes no major change in policy and external conditions; 2) allocating 1 or 2 per cent of the global GDP as additional investments into business as usual – BAU1 and BAU2 respectively; and 3) allocating 1 or 2 per cent of the global GDP as additional investments to green 10 economic sectors – G1 and G2, respectively. Under G2, the energy sector receives a much larger allocation, bringing the analysis closer to the policy targets of reducing GHG emissions to levels necessary to maintain atmospheric concentrations of CO2
at 450 ppm.
The presentation below focuses, therefore, on G2 and its comparison with BAU2.26
26. More detail on the scenarios, including G1, is presented in the modelling chapter.
27. At the global aggregated level, this is also reasonably similar to the WEO 2010 (IEA 2010d) Current Policies Scenario.
28 Increases in the supply of energy from modern renewables are more modest than growth in total investments reviewed in Section 3.1, as the latter include total financial investments.
4.1 Business-as-usual (BAU)
The BAU scenario in the GER modelling analysis is similar to the WEO 2009 Reference Scenario27
(IEA 2009a), in
which world energy resources are generally adequate to meet demand in the foreseeable future. With respect to oil, however, the long-term picture is of serious concern, even with a peak of conventional oil projected to take place after 2035.
This BAU scenario should be interpreted as representing how energy use would evolve over the next 40 years if current trends were simply extrapolated. This assumption, however, ignores important potential consequences of climate change on economic activity or other aspects of human well-being, and is thus optimistic in terms of the likely implications of following a BAU path.
In the BAU scenario, the current growth (2.4 per cent annually) of world primary energy demand slackens between 2010 and 2050 to an average yearly increase of 1.2 per cent, due to slowing population growth and economic growth. Despite slower growth, however, global energy demand still increases by about one-third, from approximately 13,000 Mtoe today to almost 17,100 Mtoe in 2050. Similarly, world electricity demand would continue to grow, but at a much slower pace (from above 3 per cent now to 1.1 per cent per year by 2050).
Under BAU, fossil fuels remain the dominant source of energy, with a constant share of about 80 per cent through to 2050. Currently, renewable energy supplies some 13 per cent of world’s energy demand, most of which is traditional biomass and large-scale hydropower. Under the BAU scenario, energy from modern renewables (excluding hydro, traditional biomass and agricultural waste and residues) would continue to register the strongest – but gradually reduced – growth rates (from around 3 per cent per year now to 1.1 per cent during 2030-2050).28
Among
the other sources in the energy mix, nuclear energy continues to expand, but the annual growth rate in supply drops from 1.3 per cent in short term to 0.6 per cent in the long run. Constant growth of coal and natural gas (1.3 per cent and 1.5 per cent annual growth respectively) and the projected decline in oil in the mid to longer term allows coal and natural gas to account for the largest shares of demand: 24 per cent for natural gas, 33 per cent for coal
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