The Energy Outlook considers a number of different scenarios. These scenarios are not predictions of what is likely to happen or what bp would like to happen. Rather they explore the possible implications of different judgements and assumptions concerning the nature of the energy transition. The scenarios are based on existing and developing technologies which are known about today and do not consider the possibility of entirely new or unknown technologies emerging.
Much of the analysis in the Outlook is focused around three scenarios: Rapid, Net Zero and Business-as-usual. The multitude of uncertainties means that the probability of any one of these scenarios materializing exactly as described is negligible. Moreover, the three scenarios do not provide a comprehensive description of all possible outcomes. However, the scenarios do span a wide range of possible outcomes and so might help to inform a judgement about the uncertainty surrounding energy markets out to 2050.
The Energy Outlook is produced to inform bp’s analysis and strategy and is published as a contribution to the wider debate. But the Outlook is only one source among many when considering the future of global energy markets and bp considers a wide range of other analysis and information when forming its long-term strategy.
This year’s Energy Outlook attempts to account explicitly for the impact of climate change on economic activity as well as the mitigation costs associated with decarbonizing the energy system. There is considerable uncertainty in the economic and scientific literature as to how to model these impacts and so any estimates of these effects, including those contained in the Outlook, are imperfect and almost certainly incomplete. That said, we have judged that it is better to use the research that is available than to make no attempt to include it in our analysis.
The economic literature on climate change has traditionally quantified the relationship between climate change effects and economic activity using climate-economy integrated assessment models (IAMs). A more recent strand of empirical literature analyses the economic impact of climate change based on estimates of how past changes in temperature in different parts of the world have affected GDP. One of the benchmark studies of this literature, Burke et al. (2015) uses the IPCC Representative Concentration Pathways (RCP) scenarios to assess the non-linear impact of temperature changes on GDP across 166 countries. They find that GDP per capita is a concave function of temperature, peaking at an annual average temperature of 13°C and declining strongly at higher levels.
The illustrative estimates of the impact from climate change on GDP contained in the Outlook are based on the models from Burke et al. The assumed temperature profiles implied by the three main scenarios are based on the RCP scenario which most closely approximate the trajectories for carbon emissions from energy use in each of the scenarios. For Rapid this is RCP 2.6; Net Zero – RCP 1.9; and BAU – RCP 4.5. The economic impacts from these implied temperature increases are computed relative to a counterfactual scenario, in which future temperatures are assumed to be held constant at recent (1980-2010) average levels.
The median climatic change impacts derived using Burke’s methodology suggest that, for BAU, the implied increase in global temperatures would decrease global GDP by close to 5% by 2050. The estimated impacts for Rapid and Net Zero are somewhat smaller, reflecting the lower path of carbon emissions. The regional impacts are distributed according to the evolution of their temperatures relative to the concave function estimated by Burke et al. Regions that are already relatively warm are likely to experience negative impacts on GDP, while colder regions could potentially benefit from relatively warmer weather.
These climate change impacts are hugely uncertain and incomplete as the Burke et al framework focuses only on temperature changes on GDP, and does not incorporate other climate change effects (such as rising sea levels, more frequent and stronger storms, floods, droughts or loss of biodiversity) or other sources of economic disruption, such as large-scale human migration.
The mitigation costs of actions to decarbonize the energy system are also very uncertain, with significant variations across different external estimates. Most estimates, however, suggests that these costs increase with the stringency of the mitigation effort, suggesting that they are likely to be bigger in Rapid and Net Zero, than in BAU. Estimates published by the IPCC (AR5 – Chapter 6) suggest that for scenarios consistent with keeping global temperatures increases to well below 2°C, median estimates of mitigation costs range between 2-6% of global consumption by 2050.
Given the huge range of uncertainty surrounding estimates of the economic impact of both climate changes and mitigation, and the fact that all three of the main scenarios include both types of costs to a greater or lesser extent, the Outlook is based on the illustrative assumption that these effects reduce GDP in 2050 by around 5% in all three scenarios, relative to the counterfactual in which temperatures are held constant at recent average levels.
Importantly, if the scenarios were extrapolated beyond 2050, the Burke methodology would imply GDP growth and prosperity in BAU would get progressively worse, leading to significantly lower levels of well-being than in Rapid and Net Zero.
The world’s scientific community has developed a number of “integrated assessment models” (IAMs) that attempt to represent interactions between human systems (the economy, energy, agriculture) and climate. They are “simplified, stylized, numerical approaches to represent enormously complex physical and social systems” (Clarke 2014). These models have been used to generate a large number of scenarios, exploring possible long-run trajectories for GHG emissions and climatic changes under a wide range of assumptions.
The Intergovernmental Panel on Climate Change (IPCC) carries out regular surveys of this scenario modelling as part of its assessment work. The most recent survey was carried out in support of the 2019 IPCC Special Report on Global Warming of 1.5°C (SR15). A total of 414 scenarios from 13 different modelling frameworks were compiled and made available via an online portal.
Some of the scenarios are now quite dated and, in some cases, scenario results are already significantly out of line with recent historical data and so were excluded from our analysis. From the remaining model runs, we extracted 112 scenarios that were judged to be consistent with the Paris Agreement Long Term Temperature Goal. They were further divided into two subsets: “well below 2°C” (69 scenarios); and “1.5°C with no or low overshoot” (43 scenarios). A more detailed note on the scenario selection methodology is available at www.bp.com/energyoutlook . For each of these two subsets of scenarios, the ranges of outcomes for key variables are described in terms of medians and percentile distributions.
It is important to note that the scenario dataset represents “an ensemble of opportunity” – a collection of scenarios that were available at the time of the IPCC survey and which were produced for a variety of purposes. “It is not a random sampling of future possibilities of how the world economy should decarbonise” (Gambhir et al, 2019). That means that the distributions of IPCC scenarios cannot be interpreted as reliable indicators of likelihood of what might actually happen. Rather, the distributions simply describe the characteristics of the scenarios contained in the IPCC Report.
The sample ranges included in the section ‘Global energy system at net zero’, are based on those IPCC scenarios in our sample which embody net carbon emissions from energy and industrial use falling below 1 Gt before 2100. This was the case for 84 of the scenarios from the sample of 112 scenarios. For each of these scenarios, the size and structure of the energy system is considered at the point at which carbon emissions fall below the 1 Gt threshold. The earliest point at which this ‘net zero’ state is reached in the sample of scenarios is around 2045 and the median scenario in 2070.
This year’s Energy Outlook includes estimates of the investment requirements implied for each of the three main scenarios for upstream oil and natural gas, renewables and carbon capture use and storage (CCUS).
Upstream oil and natural gas capital expenditure (excluding operating costs) profiles in each of the three main scenarios are calculated based on the investment required at an individual asset level to meet the shortfall between estimates of the demand for oil and natural gas and a hypothetical supply of oil and natural gas where no new investment is undertaken in new fields. Both the asset-level database and decline rates are derived from Rystad. The average base decline rate up to 2050 for oil and natural gas is estimated at 4.3% p.a. and 4.8% p.a., respectively. When including fields that have already been sanctioned, the decline rate is mitigated to 4.1% p.a. and 4.5% p.a., respectively.
The hypothetical supply baselines for oil and natural gas assume that no new investment is undertaken in new fields beginning with the 2020 supply baseline. It assumes that continuous investment at producing and sanctioned fields takes place including infill wells and costs related to maintaining the facility. Additionally, projects that have already been sanctioned (up to almost 7 Mb/d by 2025 and 400 Bcm by 2027 for oil and natural gas, respectively) are assumed to be completed in the next few years.
A set of non-producing, unsanctioned, dispatchable assets needed to meet the oil and gas shortfalls in our three main demand scenarios is defined. Based on Rystad data, the asset-level investments required to bring those assets online are estimated. Finally, the capital spending on new assets is added to the capex of the producing and under development assets. Investment in producing and under development assets are assumed to be equal in all scenarios.
For wind and solar energy, the deployment rate of each technology in each scenario is estimated. Investment costs are assigned to each based on their historical costs and learning curves. The investment costs of solar and wind energy are broadly aligned with their historical learning curves, around 8% for wind and 20% for solar.
For carbon capture and storage, the cost of investment in 2018 for different technologies – iron & steel, cement, hydrogen, power sector, chemical sector, fertilizers – is taken from a range of sources. It is assumed that the investment costs decline over time as a reflection of technology progress. The annual investment cost reduction varies from a minimum of 1.3% to a maximum of 1.9%, depending on the technology.
The total investment in CCUS is based on deployment and costs. These also include variables costs and, in particular, the cost of transportation and storage of carbon emissions which vary between regions and over time.
Extracting relevant scenario ranges consistent with the Paris Agreement goals
Scenarios are used by the private sector, international organizations and academia alike to explore how the future could evolve under an internally consistent set of assumptions. Full details are available here.
This publication contains forward-looking statements – that is, statements related to future, not past events and circumstances. These statements may generally, but not always, be identified by the use of words such as ‘will’, ‘expects, ‘is expected to’, ‘aims’, ‘should’, ‘may’, ‘objective’, ‘is likely to’, ‘intends’, ‘believes’, anticipates, ‘plans’, ‘we see’ or similar expressions. In particular, the following, among other statements, are all forward looking in nature: statements regarding the global energy transition, increasing prosperity and living standards in the developing world and emerging economies, expansion of the circular economy, urbanization and increasing industrialization and productivity, energy demand, consumption and access, impacts of the Coronavirus pandemic, the global fuel mix including its composition and how that may change over time and in different pathways or scenarios, the global energy system including different pathways and scenarios and how it may be restructured, societal preferences, global economic growth including the impact of climate change on this, population growth, demand for passenger and commercial transportation, energy markets, energy efficiency, policy measures and support for renewable energies and other lower-carbon alternatives, sources of energy supply and production, technological developments, trade disputes, sanctions and other matters that may impact energy security, and the growth of carbon emissions. Forward-looking statements involve risks and uncertainties because they relate to events, and depend on circumstances, that will or may occur in the future. Actual outcomes may differ materially from those expressed in such statements depending on a variety of factors, including: the specific factors identified in the discussions expressed in such statements; product supply, demand and pricing; political stability; general economic conditions; demographic changes; legal and regulatory developments; availability of new technologies; natural disasters and adverse weather conditions; wars and acts of terrorism or sabotage; public health situations including the impacts of an epidemic or pandemic and other factors discussed in this publication. bp disclaims any obligation to update this publication or to correct any inaccuracies which may become apparent. Neither BP p.l.c. nor any of its subsidiaries (nor any of their respective officers, employees and agents) accept liability for any inaccuracies or omissions or for any direct, indirect, special, consequential or other losses or damages of whatsoever kind in or in connection with this publication or any information contained in it.
Data compilation: Centre for Energy Economics Research and Policy