Global Energy Use and Emissions Hubs Set to Shift by 2050

Energy

Summary:

The Indian subcontinent, Southeast Asia and Sub-Saharan Africa will overtake China, North America and Europe as the key drivers of world energy use through 2050, with implications for global emissions potential and accountability.

China, the United States and Europe have been the main sources of economic growth and pollution for the past century, accounting for over half of all historic carbon dioxide (CO2) emissions and energy use, but also the majority of spending on renewable energy and emissions abatement.

In contrast, the emerging markets within South Asia, Southeast Asia and Sub-Saharan Africa currently account for less than 20% of worldwide energy use and emissions, data from Norway-based risk assurance firm DNV shows, and have less funding available for energy transition efforts than larger peers.

Global Energy Use and Emissions Hubs Set to Shift by 2050_1

Even so, thanks to strong investment and demographic trends within several key countries including India, Indonesia, and Nigeria, these regions will boost their collective consumption of primary energy supplies - which includes transport fuels - by nearly 60% through 2050, according to DNV data.

Offset

This collective rise in energy use across emerging Asia and lower Africa will more than offset the expected contraction in energy consumption in China, Europe and North America through 2050, DNV data shows.

Combined primary energy use in the Indian subcontinent, Southeast Asia and Sub-Saharan Africa will grow from roughly 115,000 petajoules in 2023 to nearly 194,000 petajoules by 2050, an expansion of more than 78,000 petajoules.

Over the same period, China, Europe and North America are expected to trim their collective energy use from around 326,000 petajoules to 250,000 petajoules, or by around 76,000 petajoules.

Global Energy Use and Emissions Hubs Set to Shift by 2050_2

This means that global energy consumption will continue to grow from current levels by 2050, despite the efforts of current energy transition leaders to reduce energy use by mid-century, DNV data shows.

Fossil Fuelled

In addition to growing overall energy use, most Asian and African countries will remain overwhelmingly reliant on fossil fuels for at least the next decade, due to the slow roll out of green energy and underdeveloped electricity grids that will struggle to accommodate intermittent renewable energy supplies.

This will likely result in a widening in the number of heavy emissions hubs from mainly in China and South Asia currently to parts of Southeast Asia and lower Africa, undermining efforts to cap pollution totals in all areas.

South Asia's largest economy, India, is expected to rely on coal, natural gas and oil for more than 70% of primary energy needs through 2040, after which solar, wind and other clean energy supplies will emerge as the dominant sources of power.

Global Energy Use and Emissions Hubs Set to Shift by 2050_3

In Southeast Asia, more than 70% of primary energy is set to come from coal, natural gas and oil through 2035, while in Sub-Saharan Africa the share of fossil fuels in primary energy supplies is set to continue expanding until the mid-2040's, despite steep simultaneous advances in renewable energy supplies.

Manufacturing Momentum

Adjustments in manufacturing capacity are set to be a key driver of energy demand growth across Asia and Africa over the coming years.

Downsizing of outdated or uncompetitive capacity is set to reduce Greater China's energy demand from manufacturing by 23% between 2025 and 2050, DNV data shows.

Over the same period, Sub-Saharan Africa is set to experience a nearly 200% climb in energy demand for manufacturing as more factories and industrial plants emerge in the region in response to favourable labour market and capital investment trends.

Strong growth rates in manufacturing energy demand are also expected in the Indian subcontinent (up 93% from 2025 to 2050), Southeast Asia (up 42.5% from 2025 to 2050) as well in as the Middle East, North Africa and Latin America.

Global Energy Use and Emissions Hubs Set to Shift by 2050_4

Currently, coal, natural gas and biomass are the primary sources of power for manufacturing in Africa and Asia, where abundant and affordable energy supplies are often more important to a manufacturers' bottom line than the emissions toll linked to its fuel source.

However, given the widespread global support for rapid renewable energy deployment in all regions, it is likely that increased volumes of cheap green energy may displace some fossil fuels in certain markets over time.

If so, the global energy landscape of 2050 will not just have drastically different geographic concentrations of energy use, but also a cleaner emissions profile that may support energy transition efforts.

Source: Reuters

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Ukadike Micheal

Central Bank

Economic

Pressures on the European Central Bank to raise interest rates are likely to increase unless European governments agree fiscal targets that are ‘more binding, less discretionary and more stringent’. At the same time the ECB will be keeping a close watch on both corporate profits and wage claims to try to achieve ‘sensible’ outcomes.

These were central messages from Joachim Nagel, president of Deutsche Bundesbank, at lectures in London and Edinburgh co-organised by OMFIF with King’s College London and the University of Edinburgh.

Nagel stated his understanding for employees in Germany and around the euro area pursuing higher wage claims to offset steep falls in real incomes. But tight labour markets were impeding central banks’ efforts to relieve wage pressure, he said, indicating the ECB would not hesitate from contributing to higher unemployment if this was necessary to bring price rises down to the ECB’s 2% annual target.

Nagel, in formal speeches on 22 and 24 March and a series of associated gatherings, reinforced his focus on preventing near double-digit inflation from becoming embedded in the euro area. He made clear the ECB needed to tighten policy further despite high debt levels and problems at individual banks suffering from the effect of higher interest rates on their asset valuations.

Looking ahead, he said that rates needed to stay at ‘restrictive levels’ for a prolonged period, scotching market hopes that central banks would soon retreat from policy tightening. On the ‘terminal rate’, he said he was ‘not a great supporter’ of model-based calculations of the level likely to end the present rate-tightening cycle, as these were often based on demand-orientated equations that failed to spot the outcome of supply-side shocks. ‘I have my own idea of where the terminal rate is – but I am not going to tell you.’

He adhered to the line that turmoil at some exposed banks – including Credit Suisse – reflected ‘idiosyncratic’ and not systemic difficulties. At the session in Edinburgh, he declined to comment on the steep 24 March Deutsche Bank share price fall. ‘When inflation is stubborn, we have to be even more stubborn.’

Nagel said he welcomed further action to reduce the ECB balance sheet beyond the relatively modest action so far this year. He wishes the ECB to stop repurchasing all bonds maturing under its ‘asset purchase programme’ from July. This would upgrade the present agreement to carry on reinvesting half of the monthly €30bn total of bonds falling due.

He hinted at proposals to stop reinvesting outstanding stocks of bonds purchased under the Covid-19 emergency programme from the end of the year.

Separately the ECB is considering measures to curb losses for central banks and lower profits for commercial banks resulting from sharply higher deposit rates on bank reserves. Raising reserve requirements and lowering interest rates on the liabilities side of European central banks’ balance sheets are believed to be measures under consideration.

Nagel said monetary policy-makers needed to ‘act decisively’ – evidenced by the ECB’s six rate hikes since July as well as the start of quantitative tightening measures to start reducing its excessively high balance sheet. But they also need governments to first decide and then implement euro area fiscal rules. ‘Fiscal policy needs to work with us in the same direction. [Governments] should not use fiscal space for more programmes. Otherwise we will have to do more on the monetary policy side.’

Accommodative monetary and fiscal policy in the past three years has supported economic growth during the period of Covid-19 and Russian-Ukrainian war upsets, helping to avoid the recession many had predicted. The rise in inflation is becoming more broad based, with euro area consumer price index inflation in 2023 likely to be 5.3% (6% in Germany), more than twice the ECB’s 2% target.

Bundesbank Calls for Steps on Fiscal Rules, Wages and Profits to Beat Inflation_1

Affirming that, ‘We will do what is necessary to return inflation to target,’ Nagel said higher interest rates would cause banks and other market participants to take fewer risks. He indicated that one reason behind the failure of Silicon Valley Bank was a careless attitude towards risk-taking.

Nagel said banking turbulence did not amount to a financial crisis comparable to 2008. ‘We have to do what we can to maintain market stability… We have the right instruments to do this,’ he stated, reinforcing ECB President Christine Lagarde’s reassurance on 18 March. ‘We are coming out of an exceptional decade where money was cheap.’ The outcome of the last financial crisis in 2008 was better regulation and stronger bank capitalisation. ‘There is a lot more we can do from our toolboxes.’

Source:David Marsh

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Justin

Economic

The jump in PMI was mainly driven by the service sector

It’s hard to get a good sense of where the eurozone economy is headed these days. Underlying developments in the fourth quarter were particularly weak, but surveys have recently suggested that the first quarter of this year is already showing some improvements. Today’s PMI perfectly fits that view as the jump from 52 to 54.1 suggests a fairly strong rebound in activity. Then again, hard data on industrial production and retail sales have not given a particularly strong view one way or another. Still, the first quarter is starting to look better than initially expected.

The positive impact was mainly driven by the service sector as the services PMI improved from 52.7 to 55.6. Growth was rather broad-based between business-to-business and consumer services, according to the survey. New orders are causing backlogs of work to increase in services, but in manufacturing we see the exact opposite. Manufacturing output PMI decreased from 50.1 to 49.9 and new orders continue to weaken. A key positive factor for manufacturing is that supply chain problems continue to fall sharply, which is helping production eat into backlogs at the moment.

The impact of the recent banking turmoil on the eurozone economy is not yet clear to see, but if problems remain contained we still expect a mild downward effect on economic activity for the coming quarters. That adds to a picture of weak economic growth for the quarters ahead as high inflation and monetary tightening weigh on economic prospects.

Overall, the inflation picture continues to improve. Price pressures are down for both manufacturing and services, but still at elevated levels. The latter is especially true for services, and the strong service sector performance adds to concerns about elevated services inflation for the months ahead. While forward-looking signs for energy, food and goods inflation are becoming more benign, this is not yet the case for services. For the ECB, this will be a key argument to continue hiking – albeit at a slower pace – at the coming two meetings. If financial conditions allow, that is.

Source:ING

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Justin

Central Bank

Economic

Treasury Secretary Janet Yellen said Thursday that the federal emergency actions to back up Silicon Valley Bank and Signature Bank customers could be deployed again in the future if necessary.

"We have used important tools to act quickly to prevent contagion. And they are tools we could use again," Yellen said in written testimony before a House Appropriations subcommittee.

"The strong actions we have taken ensure that Americans' deposits are safe. Certainly, we would be prepared to take additional actions if warranted," she added.

Yellen's testimony came amid growing market concerns over small and mid-sized regional banks that have experienced a rush of withdrawals in the wake of the SVB collapse, and specifically whether the federal government is prepared to backstop these banks in the event of a run.

In Washington, Yellen has drawn criticism from lawmakers who argue that the decision to insure deposits at SVB and Signature amounted to a reward for big banks that took excessive risks.

Meanwhile, lawmakers say, smaller institutions are being forced to confront a spike in deposit outflows — triggered by public fears about the big banks — without any special help.

Regional bank stocks fell Wednesday in part because of comments Yellen made at a Senate hearing that afternoon, in which she said Treasury was not considering any plans to insure all U.S. bank deposits without congressional approval.

Thursday's remarks appeared to shift somewhat, leaving open the prospect that Treasury could still take future emergency actions in order to prevent broader contagion and preserve large-scale financial stability.

Last week, Yellen said uninsured deposits would only be covered in the event that a "failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences."

Outside of its emergency systemic risk exception, the executive branch has little control over U.S. bank deposit insurance, because the limit is set by Congress.

The current FDIC insurance limit of $250,000 was set in 2010 as part of the Dodd-Frank financial reforms. Congress can also temporarily suspend the limit, like it did in 2020 as part of the government's response to Covid-19.

But so far, only a handful of Democrats have openly suggested Congress consider raising the limit across all deposits in the wake of the SVB collapse. Meanwhile, an influential bloc of House Republicans has already come out against any hike. This makes it difficult to envision how a bill to raise the limit would pass the GOP-controlled House.

Source:CNBC

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Alex

Economic

Has the time come for a pivot by the Reserve Bank of Australia (RBA)?

A further unwinding of the holiday-induced surge in travel and recreation prices in February, together with some lower food prices, will partly offset higher gasoline prices and some stickiness in other subcomponents to bring inflation in Australia back below 7% in February. If so, it will support the RBA's recent hints that rates are close to a peak, with one more 25bp hike looking like the most likely outcome now, taking the cash rate target to 3.85%.

Positive signs for Japan's economy

We think Japan's economy is on the road to recovery. Inflation seems to have finally passed the peak. Tokyo CPI inflation is expected to slow further, stabilising energy prices and base effects. Labour markets continue to tighten mainly in the service sector. Manufacturing activity should rebound in February as snowstorm disruptions normalise.

Upcoming survey and activity data from Korea

Survey and monthly activity data will be out next week. We believe that recent developments in global banking probably hurt consumer sentiment. On the other hand, China's reopening could help businesses be more optimistic for the future.

Meanwhile, production activity among industries should continue to diverge; we expect auto production to rise firmly on the back of good demand for electric vehicles while semiconductor production declines due to sluggish global demand for IT products.

China PMI data

China is going to release PMI data next week. We expect a month-on-month fall in export orders but an expansion of domestic orders in the manufacturing PMI index. This is because of the slowing demand for goods in export markets. Non-manufacturing PMI should post slower growth as the recovery of the Chinese economy has been gradual. Real estate activities are included in the non-manufacturing PMI index. The recent increase in home transactions should support the non-manufacturing PMI index, but it should not be seen as a growth factor.

Source: ING

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Devin

The Middle East and North Africa (Mena) region is being hit by a worsening food security crisis due to high food price inflation and collapsing currencies, even as it celebrates the beginning of the Muslim Holy Month of Ramadan.

This is affecting millions of people across the region, particularly those living in countries already facing conflict and instability, according to UN's World Food Programme.

Food prices are skyrocketing and many countries in the region are dealing with crippling budget deficits, high levels of public debt, currency devaluation and dangerous levels of inflation.

Lebanon and Syria

Five countries in the region have seen food price inflation going beyond 60% just this year with Lebanon and Syria facing triple-digit food inflation at 138% and 105% respectively. In Iran, Türkiye, and Egypt, annual food inflation is more than 61%, making it difficult for families to afford essential food items like bread, rice, and vegetables.

As national food production cannot satisfy domestic needs, heavy reliance on imports has exposed the region to fluctuations in global food prices –exacerbated by the war in Ukraine – as well as to supply chain disruptions caused most recently by the Covid-19 pandemic.

"The region's dependency on food imports means millions of people – particularly the poorest – are vulnerable when internal or external shocks push up food prices," said WFP's Chief Economist Arif Husain. "The combination of high food inflation, collapsing currencies and stagnant incomes has left families unable to put food on the table."

Global food prices

Global food prices remain at a 10-year high despite a slight decline in recent months. "These fluctuations will not dent domestic food inflation in countries facing a toxic combination of tumbling currency values and high inflation," added Husain.

According to February data, four out of 15 countries on WFP's currency watch list are in the region. In Lebanon, Egypt, Syria, and Iran, currencies have depreciated between 45% and 71% over the past 12 months alone.

"In 2019, an average Syrian family earned enough to buy more than double what they needed every month for food," said WFP Country Director and Representative in Syria Kenn Crossley. "Right now, that same income, which has not gone up, can only buy a quarter of what a family need."

At the same time, food production in the Mena region is curtailed by both conflict and a deepening climate crisis. In Iraq and Syria, prolonged droughts and the effects of conflicts have reduced cultivated areas and cut food production. The region has been hit hard by the climate crisis, and is seeing prolonged droughts and heat waves, wildfires, flooding, erratic rainfall and landslides.

Taking action

As the crisis continues, it is critical that governments, international organisations, and donor countries take action to address food security across the region. This includes increasing funding for humanitarian assistance, supporting local farmers to boost food production, and addressing the underlying causes of conflict and instability in the region.

"Governments need to invest more in agriculture across the region where almost all countries are import-dependent," says WFP Regional Director for the Middle East, North Africa and Eastern Europe Corinne Fleischer. "This is a long-term strategy that will not help the poor cope with price rises now but will pay dividends some years down the line."

The number of food-insecure people across the region increased by 20% over the past three years – reaching more than 41 million people, compared to 2019.

In response, WFP is using integrated approaches, which aim to address the root causes of food insecurity while at the same time meeting immediate needs. In 2023, WFP is targeting nearly 35 million people across the Mena with food and nutrition assistance and working to increase the resilience of the most vulnerable in the face of regional and global shocks.

Source: Trade Arabia

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Thomas

Energy

India has emerged as a renewable energy star after boosting solar capacity by a whopping 28% in 2022, rivalling China's growth rate and outpacing European heavyweights which deployed record funding on energy transition efforts last year.

India installed 13.9 gigawatts (GW) of new solar capacity in 2022, according to think tank Ember, dwarfing the 7.9 GW capacity growth in Europe's top solar producer, Germany, and establishing India as a top-tier green energy leader.

India's wind capacity expanded by 1.8 GW in 2022, slightly behind Germany's record 2.4 GW capacity climb, and helped push India's combined solar and wind capacity up by an impressive 17.5% within a single year.

While China also added record solar and wind capacity in 2022 to widen its overall renewables lead, India's record build out of solar capacity last year has been widely celebrated by energy transition advocates.

But even with such rip-roaring green energy momentum, India's utilities still struggled to keep up with the country's voracious energy demand growth, and had to crank coal use to record highs alongside the breakneck growth in renewables.

India's Coal + Renewables Mix Makes for Messy Energy Transition_1

In turn, the country's heavy power generation from coal - which produced nearly 75% of the country's electricity in 2022 - emitted close to one billion tonnes of carbon dioxide (CO2), and placed India as the third biggest fossil fuel polluter from power generation after China and the United States.

This dual prominence in renewables and coal use rankings highlights India's awkward role as both hero and villain in climate circles, and underscores how messy the path towards energy transition targets can be for many major economies.

Gas Reversal

India's emissions footprint would be smaller had the country continued to integrate growing volumes of natural gas into its power mix while reducing use of dirtier-burning coal, as had been India's stated plan over the past two decades.

Natural gas generated an average of 11% of India's electricity from 2000 through 2012, and the country had been expected to steadily increase gas use while reducing coal consumption as part of air-clearing efforts.

However, a combination of delays in developing gas pipeline networks and regasification terminals for liquefied natural gas (LNG) imports started to reduce gas availability within India in recent years, forcing utilities to burn growing volumes of coal to meet rising energy demand needs.

High and volatile global natural gas and LNG prices since 2020 have further trimmed India's gas supplies lately, forcing utilities to reduce gas-powered electricity generation to less than half the levels seen a decade ago.

Only 2.2% of total India's electricity was produced from gas in 2022, according to Ember - the lowest in over 20 years.

Coal Conundrum

Such low utilisation of natural gas for power generation forced utilities to burn through coal at a record pace, straining the country's domestic coal supply system and pushing coal imports to historic highs.

As global coal prices also scaled a record in 2022, the cost of those imports pushed to new highs too, draining the already-tight budgets of utilities and local governments and reducing the pool of funds available for energy system upgrades.

In turn, that is forcing utilities and policymakers to continue to favour the lowest cost options for power generation, which further cements coal's status as India's primary source of baseload power.

A slump in natural gas prices on international markets so far in 2023 is giving utilities a window to switch out some coal for cleaner burning gas.

But with pipeline access still limited and LNG import terminals still under construction, power producers have little choice but continue to burn more coal.

Renewable Drive

While coal looks set to remain locked in as the main pillar of India's power sector for now, it is clear that a vast majority of future electricity supply capacity will be dedicated to renewables.

Since 2017, annual capacity of renewables has grown by more than any other power source, and the government is pressing hard for continued rapid renewables growth to meet its target of sourcing half its energy from renewable sources by 2030.

India's Coal + Renewables Mix Makes for Messy Energy Transition_2

Simultaneously, however, authorities are pressuring power producers to boost coal-fired generation by invoking emergency laws that force coal plants that run on pricey imported coal to increase utilisation rates despite being less competitive than plants which run on cheaper domestic coal.

On paper, such conflicting government stances on power sector priorities may appear to be counterproductive, and may potentially undermine India's energy transition efforts.

But in reality, this messy mix of record dirty coal use alongside record renewable energy capacity growth may be the country's best option for sustaining current economic momentum while inching towards lower emissions targets of the future.