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1.5 degrees: the global outlook

Welcome to the thirteenth series of the DNV Talks Energy podcast, hosted by Mathias Steck. In this series we explore the key insights from DNV’s latest Energy Transition Outlook and what they mean for the future of our planet. We explore the geopolitical developments affecting the energy transition, and what’s needed from technology, finance and policy in delivering net zero. Crucially, we explore: how do we move from ambition, to urgent action over climate change?

In the opening episode of this new series of DNV Talks Energy we explore what DNV’s latest Energy Transition Outlook tells us about what is happening right now on climate change, and what the short, medium and long-term trends are expected to be in the journey towards net zero.

  • Support on the development of port-specific hydrogen bunker guidelines
  • Feasibility studies and decision support for:
    • hydrogen as a marine fuel
    • hydrogen infrastructure
  • Quantitative risk assessments (QRAs) and HAZID studies for planned hydrogen infrastructure

Host Mathias Steck is joined by Ditlev Engel, CEO of DNV’s Energy Systems business, to discuss the outlook for vital components of the energy transition, including renewables and hydrogen, and why, without urgent policy action, emissions reduction targets will not be met.

Transcript:

Transcript:

MATHIAS STECK    Welcome back to the DNV Talks Energy Podcast. This is our 13th series, and it makes me very happy to say that, after two years of online recording, I'm now back to talking to my guests face to face. During this series, we'll be exploring some of the key insights from DNV’s Energy Transition Outlook, our annual independent model of the world's energy system, and what they mean for the future of our planet. Across the series, with the help of leading industry guests, we’ll shed light on what's happening right now and the forecast as we move forwards. We'll explore topics from the geopolitical developments affecting the energy transition to what's needed from technology, finance and policy in delivering net zero. Crucially, we’ll ask: “How do we move from ambition to urgent action over climate change?”

In this episode, we focus on what DNV’s Energy Transition Outlook tells us about what is happening right now on climate change and what the short-, medium- and long-term trends are expected to be in the journey towards net zero. I'm joined today by Ditlev Engel, CEO of DNV’s Energy Systems business, who is uniquely placed to explain what DNV’s latest findings mean for how the planet's most pressing issue is tackled. Together, we’ll discuss the outlook for vital components of the energy transition, including renewables and hydrogen, and how governments worldwide will maintain a focus on net zero in the face of immediate energy security challenges. We hope you enjoy the episode.

Welcome to the DNV Talks Energy podcast, Ditlev. It's always a pleasure having you here. For the benefit of our listeners, could you briefly introduce yourself and your role in DNV?

Transcript:

DITLEV ENGEL    Thank you very much, Mathias, for having me again. My name is Ditlev Engel, I am the CEO of business area Energy Systems at DNV. We are 4300 people working in the entire value chain within the energy sector across the world.

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MATHIAS STECK    So, Ditlev, across this series we’ll be exploring key findings of DNV’s Energy Transition Outlook. For a start, could you explain what the DNV Energy Transition Outlook is and why DNV is publishing it every year?

Transcript:

DITLEV ENGEL    Yes. So, 6 years ago we discussed that, in total at DNV, we are more than 12000 people who literally are working in the engine room of the maritime industry, the energy industry and the digital industry. And our clients kept asking us: “What do you think the future will look like?” So, we said, “Well, actually, from a technology perspective, we do nothing else every single day.” So basically, we said, “Maybe we can turn all that knowledge we have across DNV into an Outlook.”

And so, we decided to make what we called ‘the most likely future, based upon cost’. That means, for instance, if a battery costs 100 today, 50 in five years and 25 in seven years, what will that mean for the uptake of batteries in the energy transition, for instance? So, we take and make this model on a global scale. We also then put it into ten different regions because, obviously, each region has different starting points and that gives what we call the most likely future, based upon the cost of technologies and the development of the technologies over the years as we forecast them and as we know them when we work with them across DNV, every single day.

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MATHIAS STECK    So, what are the most significant findings of this year's report?

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DITLEV ENGEL    Yes, so, I said we have made it now for a number of years. And basically, one of the very important findings that we have every single year, unfortunately, is that even though we're going to see massive things happening on the energy transition, then, unfortunately, we won't get to the Paris Agreement we have over the number of years said – we’ll probably end up in a scenario around 2.2 degrees centigrade warming. So, that is unfortunately being confirmed again. And you can say, well, that's the same message, but we keep confirming that that is the most likely development we’ll see from that perspective.

The other things that we keep seeing is that we will see a massive electrification of the world and that will be driven by, first and foremost, renewables, simply because that will be the cheapest way to electrify the world. So, we are seeing many of the trends being reconfirmed, which I personally think is good, because hopefully it will also give all our customers even more confidence in making what are very important long-term decisions.

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MATHIAS STECK    So, since February this year, we have this conflict between Russia and Ukraine, which has caused a global energy crisis. Do you think this has an impact on the long-term trajectory of the energy transition?

Transcript:

DITLEV ENGEL    Well, that's a very good question. I think the invasion in Ukraine has learned us some very important things. The first thing is that all energy decisions are long-term. You cannot just change the energy mix in a short term. It is about long-term thinking when you deal with energy.

And we obviously see that now in Europe because we have a massive pressure due to the situation of gas. And that, I think, is actually one of the important messages as well, that a lot of people say, in Europe we have an energy crisis. But that's not really true. We have a fossil fuel or a gas crisis at the moment because we cannot get the gas we used to get in Europe. And that, of course, also has taught us that dependency is something we have to take very seriously when we think about energy planning ahead. But if you then look a little beyond the coming winter in Europe, where obviously right now it's a challenge to make sure we have enough just to get through the winter, but when we look a little further than that, then the outlook actually has not changed. And the reason for that is, again, the economics, that the best way to scale up, electrify Europe would be to build out renewables massively. And that hasn't changed because of the conflict, I would rather say has maybe re-emphasized that it is about electrification, it is about decarbonization, and it is now to do it even faster than we maybe had planned in the past. So, it doesn't change the way or where we want to go, but it has now, I think the tragedy in Ukraine has shown us how important it is that we get this done as soon as possible.

Transcript:

MATHIAS STECK    So, do you see a different balance or a different speed regions are going about this transition now? Europe has a big interest of being independent. Other countries still have to fight high inflation, mounting government debt. Does that have an impact on how it develops at different parts in the world?

Transcript:

DITLEV ENGEL    Well, you know, if we still stay in Europe, number one, what we are seeing now is that the commitment from governments in Europe to build-out, for instance, of offshore wind, has never been higher. I think at this moment we are at about 165 GW of offshore wind that has been committed to be built out in the coming years. We saw in the month of May that Germany, Denmark, Belgium and the Netherlands got together and signed up 65 GW by 2030 in the North Sea. So, there are some very strong commitments.

And therefore, it's important to remember that the challenge that we actually have is not technology related, it's permiting and planning related. Meaning that the technology can actually be scaled very fast, but it is all the rules and regulations that we have put around them, which is delaying it, and why it takes much longer to build out. But it has nothing to do with the technology. And that's, of course, also important to remember that, so, from a cost perspective and from a timing perspective, we could do it significantly faster than we are doing at the moment. But we have the rules and regulations right now that are difficult to deal with. So, it is actually a policy matter that we have to get solved as fast as we possibly can.

And then just getting back to the economics, because we hear that very often: “But what about the economics?” Well, actually, in the Outlook that we make, it is actually confirmed that the cheapest way of doing this would be, for instance, to scale renewable massively. Of course, you will need to invest a lot of money upfront. So, if you look at it from a – if you were the finance minister of the world and you would sit and look at what does the world in total spend on energy, today we spend about 3.4% of global GDP on our energy cost – today, with the current system. If we then went into a, let's say, a fully decarbonized system where we would get 80% of our energy from non-fossil and 20 from fossil in 2050, we would spend 2.4% of global GDP, which is actually a 50% reduction. So, if I was the Minister of Finance in the world, I would say, “Hey, we are spending 3.4 today; if we make this investment going forward, we only spend 2.4. We cannot afford not to do this.”

But of course, it is a massive transformation that needs to happen. And therefore, of course, it's just important, again, to remember that when we make this decision, what is the long-term outlook of the cost? And here, renewables are actually very predictable in cost. And therefore, I think it's very important to remember that even if we have to invest in a lot upfront, we are going to get it back later, because we will then actually spend less than we do today.

Transcript:

MATHIAS STECK    So, to put this importance of renewables into perspective, what is DNV’s Energy Transition Outlook’s finding about the outlook for renewables and the share in the energy mix by 2050?

Transcript:

DITLEV ENGEL    So, we are – we are actually showing two reports. We are showing in the ETO, which is our most likely future, and there we would see wind go up 10 times, solar 20 times; but as I said, unfortunately, we are not going then to get to Paris. Even that is the most likely future driven by cost. We have therefore also decided to turn it around and say, “Well, that's not good enough. If we need to get to 1.5 degrees centigrade, as in the Paris Agreement, what we would we then need to do?” So then, we made a report which we have called ‘the Pathway to Net Zero’. And in the Pathway to Net Zero, that actually would mean that wind has to go up 20 times and solar 30 times. But here, I think it's really important to look at the trend, so, whatever scenario we’re looking at, we are looking into a massive build-out of both wind and solar, at least from a technology-cost point of view. Now, we, in brackets, just need to make sure that the rules and regulation can handle that. But the technology can handle it.

Transcript:

MATHIAS STECK    And what about adjacent technologies to build up so much renewables? We’ll also need a strengthening of the grids. What needs to happen there to make this build-up of renewables possible?

Transcript:

DITLEV ENGEL    Yeah. You know, it would be a bit like buying a lot of cars and then not build the highways and everybody is saying, “Well, that's stupid. Now we have all these cars. Why did you not look out for that?” But because the grid is normally underground, so we don't see it. But that is exactly what we need. So, we need the, let's say, the electricity, highways build-out. So there needs to be a massive build-out of the grid infrastructure, in order to handle all this electricity that we will see there going forward.

And again here, it's important to remember that the numbers that I mentioned before about what it will cost, that the more grid build-out we do, the more we do that, every time we do that, we actually in the long term keep reducing what we pay per install, let's say, meter or kilometer of cable, because we keep getting more bang for the buck. So, the faster that we scale it, the faster we do it, the cheaper it also becomes, which is like I think any products that anybody knows, that when it’s being mass produced, will keep seeing a reduction per unit you produce. So, the faster we will do this and the more we will do of it, the cheaper it also will become.

Transcript:

MATHIAS STECK    So, the electrification of the energy system and the large share of renewables, which we have just discussed, is one important column of the energy transition. But then we also have the hard-to-abate sectors, which are banking on the replacement of fuel to what? Hydrogen, for example? How do you see this development there? Are we moving fast enough? And what else needs to happen in that sector?

Transcript:

DITLEV ENGEL    Yeah, that's a – that's a very good point, Mathias, so basically what we're looking at when we say the electrification of the world is that whatever you can directly electrify – so that would be our cars, our homes – we should do. But then there are certain things where this won't work, sort of from a technology perspective. And one of them, for instance, would be maritime, another one would be the aviation industry, and the third one would be heavy duty industry, i.e., for instance, production of steel, etc. And there, you can't do it with renewables, so… but it has to be fossil free. What do you then do?

And this is where hydrogen will play a very important role because that will be the other way of doing it in, let's say, without emissions and there, hydrogen will be very important. We don't see hydrogen, for instance, being used going forward in cars and others, we think that will be through batteries and so on. But for the hard-to-abate sectors, hydrogen will be very important. So, we will see a massive scaling of hydrogen, but only in the 2050 we will be about 5% of the total energy will be hydrogen. Hydrogen is talked a lot about in this moment and there's a lot of interesting perspectives on hydrogen, but it is also an item that is difficult to handle from a safety and also from a cost perspective.

Transcript:

MATHIAS STECK    So for the remaining delta, what about the importance of technologies like carbon capture and storage? Would that play an important role in the transition as well?

Transcript:

DITLEV ENGEL    Yeah. So, if I can go back to sort of the idea, if you were the global minister of building the energy mix, you would sit and look at the ten different regions and then you would say, “Hmm, the starting points are very different around the world. So, what are they capable of doing economically and from the technology perspective?” So, if we are going to deliver on the pathway to net zero report that I mentioned before, that actually means that some countries, like for instance, in North America and Europe, it is not enough to get to zero, they have to go to minus. And that, of course, you can only do if you use the technologies you just mentioned, because other parts of the world simply won't be able to do that because of where they are right now, technology wise, etc.

So, we will need to think about this, that we have to use all the tools that we have at our disposal, and we will need to use them in a different way, in different places, in order to make sure we get there. So, we have not to think about what does CCS cost against solar, we need to think about what should the role of CCS be going forward, how to support this so we use all the tools in the toolbox. And through that we will then get the most, let's say, optimal economical position from a global perspective.

Transcript:

MATHIAS STECK    So, two aspects. No country can achieve the energy transition alone; it needs to be all of them. The second thing we see at the moment is: large projects. When we talk about green hydrogen projects, for example, we have a renewables part, we have a pipeline transmission part, we have an electrolyzer part, and we have other use cases. How important is cross-industrial and cross-country, cross-regional collaboration in the energy transition?

Transcript:

DITLEV ENGEL    So, as I mentioned in the beginning, the business area from DNV that I represent is called Energy Systems, and there's a good reason for that. And the reason for that is, obviously, that the future is very much about thinking systems and integration of systems. So, we have to think about collaboration both from an energy systems perspective, but also a cross-industry perspective. And I think this is very important to remember, that there are so many industries now that are obviously using energy and the way that they think about using energy going forward. And we need to work with all of them and we need, together, to find the right optimal solutions.

One example, for instance, would be, what will be, since we are in Singapore here today, what will be the future role of ports if you're not going to use them anymore for shipping out of coal? What role can they play if you have to bring a massive amount of electricity from offshore wind parks in and store it and distribute it into societies? So just for instance, the ports are going to play a new role, the vessels are going to play a new role if they're going to either be electrified or be running on green fuels, etc., etc. So, we need to think about everything in the infrastructure in a different way and how they need to adjust in order to – because we are changing to using a complete new type of fuels going forward and the way we are going to work with that. So, it is not just an energy transition in brackets, it is a – I would call it nearly an industrial revolution, because we need to change so many things across industries. So, it involves everybody who is actually consuming energy.

Transcript:

MATHIAS STECK    Ditlev, great commitments were made at COP26, but unfortunately the emissions didn't decrease, they increased. Now going forward, what would be the most important parameters to measure to know that we are on a trajectory of success?

Transcript:

DITLEV ENGEL    Yeah, as you said, we have now been discussing the same thing for more than 25 years. And we know we have so many things we have to do in the years to come. So, I think what is very important now is that the good old saying, ‘what you measure, you improve’. So, the first and the most important question is: what do we measure? And what we really need to measure is how to reduce the emissions, with 8% every single year going forward. Now, to put that into perspective, during COVID, we actually reduced the emissions with 6% when we were not flying, when we were all sitting at home. But we can only do that once. So that gave us 6%. And every year we have to cut it by 8%. So, we have to think about not just that we will build out a lot of renewables in the coming years. We have to show a commitment. What will country A, what will country B, country C do every single year to lower the emissions by 8%? Otherwise, we are not going to get to Paris.

So, you know, it's about, how do we then report on that and how do we measure that? So, I would like to see that all the COPs going forward, there would be an evaluation of how much has the emissions been lowered per each country and what are the plans for lowering them the next year, not in the next 20 or 30 years. Otherwise, you know, it would be a bit like, I will tell you today: “Okay, you know what? I have planned to lose about 10 kilograms in 10 years,” and we'll talk about that. You're probably more impressed if I tell you that, you know, I'm going to lose 500 grams the next month and then 500 grams a month after that. And that's the kind of mindset we need to have. Instead of saying, “Yeah, we're probably a long time away, I'll do something.” That is not working for us. So, we have to be much more concrete, we have to be much more transparent, and we have to be much more direct, and we have to measure and discuss it every single year, but also inspire each other because we need to learn from each other. How would you, for instance, manage to get your 8% emissions down every single year? What are you doing to do that? And so, I think we need to measure the actual reduction in emission more than discussing and saying, hey, you know, “I'm going to build 25 GW in 20 years from now.”

So, we need to be much more transparent, much more concrete, and measure it much more frequently than we have ever done before. And we need to measure the reduction in emission. And the key number here is 8%, every single year. Otherwise, we won't get to the agreement in Paris.

Transcript:

MATHIAS STECK    And that brings me to my last question. I'm interested in your personal view: how optimistic are you that we, as a society, can actually reach these so important targets to abate climate change?

Transcript:

DITLEV ENGEL    I've been working in the sector for many years and what I just have to say is that, when it comes to technology, I am extremely optimistic. And we don't even yet have contemplated all the things technologies can do for us. But it can only happen if we let technology do its work, and that's the problem. So, I would say I'm very technology optimistic. I am somewhat more regulatory pessimistic. But the good message really is we have the tools that we need. It's all about we start using them in the right way. And that, I think, is where we all need to focus. And the good news at the end of the whole thing is that, from an economic perspective, it will also be the right thing to do. So now we just have to connect the dots. So on that note, I would have to say we all have just to enlighten people, and that's exactly what we'd like to achieve when we are launching both the ETO and the pathway to net zero – it’s to demonstrate and give people the confidence that this is the right thing to do and that they should trust even more in the technologies because that is the way that we have to solve this problem.

Transcript:

MATHIAS STECK    Thank you very much, Ditlev, for sharing all these great insights with us this morning. It was a pleasure having you with us.

Transcript:

DITLEV ENGEL    Thank you so much, Mathias.

Transcript:

MATHIAS STECK    Thank you for joining us for this week's episode. Ditlev provided us with the very latest forecast over the expected pace for the energy transition and explained the factors that will determine whether or not targets are met. He told us that, while COP26 provided a consensus over climate ambitions, world leaders still need to do far more as we move beyond COP27. In particular, he called for a focus on annual carbon emission targets as longer-term goals and an efficient motivator for urgent action. Across this series, will expand further on some of the major talking points Ditlev raised today. Join us next week as we discuss the global energy security crisis in more depth and ask whether a focus can be maintained over net zero by governments face acute challenges.

To hear more podcasts in the series, please visit dnv.com/talksenergy.

 

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