BP sees energy trend, climate goals mismatch

The world's carbon emissions — which grew by 2pc last year, the fastest since 2011 — are unlikely to start falling in the coming years unless governments step up policy incentives, according to BP.

Global energy demand increased by 2.9pc last year, recording the fastest growth since 2010 despite modest GDP growth and rising energy prices, BP said today in its latest Statistical Review. The growth was supported by an unusually high number of hot and cold days last year, it said.

Two-thirds of the growth came from China, the US and India. In the US, energy consumption went up by 3.5pc, representing the fastest growth in 30 years.

"There is a growing mismatch between societal demands for action on climate change and the actual pace of progress, with energy demand and carbon emissions growing at their fastest rate for years," said BP chief economist Spencer Dale. "The world is on an unsustainable path."

Last year's increase in carbon emissions is "roughly equivalent to the carbon emissions associated with increasing the number of passenger cars on the planet by a third", he said.

Renewable energy growth amounted to 14.5pc, remaining "by far the world's fastest growing energy source", Dale said. Gas demand increased by 5.3pc last year, accounting for almost 45pc of the world's energy consumption growth and gaining share relative to coal and oil. In total, oil, gas and coal accounted for almost three-quarters of last year's growth in energy demand, the highest share in five years, he said.

"Year-to-year growth in non-fossil fuels, especially renewable energy, is largely determined by policy and technological factors, and so are typically less responsive to cyclical movements in energy growth than are oil, gas and coal," Dale said. "Strong growth in overall energy demand tends to be associated with a greater-than-normal contribution from hydrocarbons, as they expand to balance the system."

Oil production in the US rose by 2.2mn b/d last year, the largest-ever annual increase by any country. US gas production growth of 86bn m³ was also the largest ever by a nation.

Climate activists have accused oil and gas firms, including BP, of harming the planet by continuing to produce hydrocarbons. Environmental group Greenpeace wants BP to "immediately end drilling new wells and switch to investing only in renewable energy". But BP said that relying just on renewables is unlikely to be sufficient to de-carbonise the power sector.

The world's power demand grew by 3.7pc last year, accounting for about half of the increase in primary energy, BP said. China accounted for 45pc of the global growth in renewable power generation.

But carbon emissions from the power sector increased by 2.7pc last year, accounting for around half of the growth in global carbon emissions.

"Electrification without de-carbonising power is of little use," Dale said. "If we focus solely on renewable energy, renewable generation over the past three years would need to have grown more than twice as quickly than it actually did" for growth in power generation to be carbon neutral, he said.

"Alternatively, the same outcome for carbon emissions could have been achieved by replacing around 10pc of coal in the power sector with natural gas," he said. "The intuition is that renewables are still a relatively small share of power generation relative to coal, and so the proportional movements in coal are a lot smaller."

There have been "extraordinary growth" in renewable energy, as cost have fallen sharply and investments have increased, with "even greater investments" needed, Dale said.

"But we are seeing very little investment in carbon capture, use and storage (CCUS)... because we do not have the policy incentives to support it," he said. "If you do not have a material carbon price or some other incentive to do that, then you just have to make losses on CCUS. CCUS, just like renewables, has a public-good element. It benefits society, because you are capturing carbon. If you rely on private companies to invest in public good... you will not get the right level of investment in it."

Dale also said that BP would prefer a rapid transition to a lower-carbon future, because "trying to manage a company when you are on an unstable path is a very difficult thing to do".

"The longer carbon emissions continue to rise, the harder and more costly will be the necessary eventual adjustment to net-zero carbon emissions," said BP chief executive Bob Dudley. "This is not a race to renewables, but a race to reduce carbon emissions across many fronts."