Looking back at the energy transition over the last two decades, emission reductions have mainly been achieved through improved energy efficiency and early power sector decarbonization. In both cases, profitability and economics have been the main drivers, rather than comprehensive climate policies. In the next phase, emissions abatement will also occur in the transportation, buildings, and industrial sectors. This is less straightforward and will bring a far more complex pathway for global energy demand than in the fossil fuel era, which investors and the finance sector will have to understand. Will cars run on gasoline, diesel, biofuels, electricity or hydrogen in the future? How can the steel sector phase out coal? Is carbon capture and storage the only viable option to decarbonize the cement sector?

To answer these questions and others, Rystad Energy has modelled 12 scenarios for the future global energy system. All the scenarios relate to varying average global temperature rises, from 1.4 degrees Celsius (°C) to 2.5°C above pre-industrial levels. The scenarios provide pathways for how all countries, and all sectors of the global economy can reduce greenhouse gas emissions in line with required carbon budgets. The wide set of scenarios provides an excellent basis for evaluating the speed and trajectory of the energy transition and it quantifies the uncertainties the finance sector must grapple with.

Take, for example, road transport, which is currently responsible for 15% of global carbon emissions and makes up 19% of final energy demand. Historically, oil has been the dominant fuel for all vehicles, occasionally with some blended biofuel. This reality is, however, now in the midst of a rapid transition. At the end of 2023, global sales of electric and plug-in electric vehicles reached 22% of all personal car sales, compared to only 2% in March 2020. China is the frontrunner in this development, as illustrated by the Chinese car maker BYD outselling Tesla and becoming the world’s largest producer of electric and plug-in electric vehicles.

Another sector receiving much attention is the iron and steel industry, currently responsible for 7% of global carbon emissions. Our analysis of more than 20 combinations of steel-making technologies shows that hydrogen and carbon capture, utilization and storage (CCUS) will compete neck-on-neck as the most dominant decarbonization technologies for the industry. However, a fully electrified steel-making process is being pioneered by start-ups such as Boston Metals and Electra. If successful, these technologies could revolutionize global steel production, which currently depends on coal for more than 70% of its energy needs.

One final example is the cement sector, which presents a special challenge due to typical process emissions of about 500 kilograms of carbon dioxide per tonne of clinker. CCUS is a likely solution to address these emissions, but many initiatives are looking at other alternatives. One example is Ecocem, which is working on a new binder that it says will make it possible to reduce the use of clinker to 20% from the level of about 70% today.

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