Energy use must decouple from GDP growth for sustainable future

18 June 2019 Consultancy.uk

Transforming the global economy is increasingly seen as imperative to preventing an irreversible climate tragedy, but at present only marginal and short-term improvements have been committed to by governments and corporations. A new report has found that 2050 will see wind, solar and hydro supply half the world’s energy, but this will be far too late to make an impact on the warming of the planet.

Despite mounting evidence of the harm they are wreaking on the environment, businesses and governments remain reluctant to end their relationship with fossil fuels. While coal production already peaked in 2014, demand for oil is not expected to peak until the early 2030s at 108 million barrels per day. A recent report also found that the demand for coal will fall by 40% by 2050, mostly due to China opting for alternative energy sources, but natural gas is the only fossil fuel that will rise in use in the next 20 years, partially cancelling out that progress.

One key development required to change this is the decoupling of energy use with economic growth. GDP has long been used as the only metric in town when it comes to measuring the health of a nation, region, or the world, and it has historically depended on increased energy consumption. Yet given the current trend of deriving energy from greenhouse gas emitting sources, a continued trend in that vein could result in negative long-term outcomes for both the global economy, the environment and social expectations. This could be about to change, however.

Global primary energy demand, millions of terajoules

A new study from McKinsey & Company has claimed that there is finally a decoupling between energy consumption and economic growth – one it predicts is set to grow over the coming decades. While demand for energy has grown in line with economic growth – changes in how economies function as they mature means that demand decreases, while shifts in how economies operate – with increased focus on reducing waste, becoming more efficient, as well as shifting away from consumption of goods towards the consumption of services – will see a sharp decline in overall demand, even as living standards continue to rise.

The consulting firm notes that increased focus on services rather than goods – which will increasingly need to become circular – decreases energy intensity to a tenth of goods industries. In some countries, such as the US, up to 80% of the economy is set to become service based. Meanwhile energy efficiency will drive overall reductions in demand – with, for instance, energy efficient lights, costing a fraction of the total cost of older forms of lightbulbs over their lifetime.

Meanwhile, the transportation sector will see significant improvements in efficiencies. Electric engines are 90% efficient in converting electricity to locomotion, compared to 40% for an internal combustion engine. The near doubling of the global fleet by 2050 is set to see no net increase on total energy demand as the fleet electrifies and requirements on ICE vehicle emission standards become ever more stringent.

Year when new-build solar capacity becomes cost-competitive with existing fossil plants

The research further asserts that there will be large scale changes are likely once various tipping points are reached around primary energy generation. These changes could see rapid increases in decentralised production, as retailers switch to producing their own power onsite. Solar and wind in particular will be cheaper to deploy, almost everywhere by 2020, relative to gas. And by 2030 to coal. Europe in particular is well ahead of the curve, while China and India are set to see the levelised cost of electricity for some form of renewable production by 2025.

By 2050 wind, solar and hydro are projected to supply half the world’s energy. This remains too slow, however, to meet the Paris Agreement and other targets – as well as future targets – suggesting additional efforts will be required to hasten a shift to sustainable energy use. The firm warns that expecting things to stay the same may have negative balance sheet implications for companies invested in legacy forms of production. Failing to seize on this might not only see firms fail to meet such targets, they might also forfeit major opportunities to improve their businesses performances.

Authors Namit Sharma, Bram Smeets, and Christer Tryggestad provided an example, “Any company with a roof can install solar panels. For large retailers with massive floor space under broad roofs, that’s not trivial: it can afford them a measure of independence from the electrical grid, protection from price fluctuations, and new opportunities for profit by trading in electricity markets."

Related: European countries top WEF and McKinsey Energy Transition Index.


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