22 April 2021
During the 2020 calendar year, investment focused on the energy transition reached US$501.3 billion - its highest ever level1. As noted in our recent commodities outlook, European countries mobilised US$166 billion of energy transition related investment in calendar year 2020, more than the other two big spenders, China (US$135 billion) or the US (US$85 billion)2. Renewable energy capacity attracted US$303.5 billion of investment and electric vehicle (EV) sales surpassed the 3 million mark for the first time.3
Signals like these are also reflected in our own forecasts. Despite already being at the aggressive end of the spectrum on long run electric vehicle penetration, we recently raised our EV forecasts. In our central case, by 2035 EVs are expected to constitute around 17 per cent of the light duty vehicle fleet and around 41 per cent of annual sales. The 17 per cent fleet share we now project in 2035 translates to 314 million EVs on the road, versus 276 million previously.
While this is in its own right highly encouraging against the backdrop of a global pandemic, it is also good news for many of the commodities BHP produces.
In our climate change briefing in September, we shared our latest portfolio analysis which indicates that BHP will perform best in a transition to a world where global warming is limited to no more than 1.5 degrees celsius above pre-industrial levels. This is based on our scenario analysis4 but also reflects a simple understanding: without many of the commodities we produce, the infrastructure essential to a lower carbon world cannot be built. In other words, we produce commodities that are likely to be essential to the energy transition.
Radical shifts required
Despite these positive signals on investment, further radical shifts will be required for the transition to occur.
While the COVID-19 pandemic saw global emissions plunge by almost 2 billion tonnes in 2020 - the largest absolute decline in history - by December 2020 emissions were growing again on a year-on-year basis.
And yet in virtually all scenarios aligned with the goals of the Paris Agreement, steep global annual emissions reductions are required, sustained for decades, in order to stay within a carbon budget that limits warming below 1.5 degrees of warming. Consistent falls in emissions just cannot occur without a fundamental change in how we meet our energy demands.
In BHP’s 1.5 degree scenario, by 2050, the energy system would need to have undergone unprecedented change to curb emissions. Power generation would need to be essentially decarbonised through a large-scale shift to renewables, supplemented by nuclear and a ramp-up of gas generation with carbon capture, utilisation and storage (CCUS). Compounding the challenge, demand for electricity grows by 80 per cent as the transport and building sectors rapidly electrify, along with some elements of the industrial system.
Resourcing a cleaner future
This is just one possible path, but it is telling of the changes required. If anything close to this scenario is to play out, massive investments in zero carbon energy infrastructure will be needed.
An often overlooked fact is the dependency of this progress on mineral resources. Currently, there is simply no commercial substitute for many of the raw materials that are the foundation of a lower carbon world. While this can be lost in conversation, organisations like the World Bank agree.
Our 1.5 degree modelling suggests the world is expected to need almost twice as much steel in the next 30 years as it did in the last 30. Iron ore and metallurgical coal will be vital in producing steel that goes into wind turbines and carbon capture pipeline infrastructure.
If we want to keep pace with the development of decarbonisation technologies such as electric vehicles, offshore wind and solar farms, then we estimate that global copper production will have to more than double over the next 30 years.
Under our 1.5 degree scenario, we estimate that primary nickel production (ie mined resource) will have to increase nearly four-fold to power the next generation of battery technology. Nickel metal available from the likely boom in recycling will come on top of that.
And potash demand would increase to drive higher agricultural yields as land use competition intensifies further, with a surge in sustainable biofuel production as well as an estimated 4 million square kilometres of afforestation required.
Much more to do
The 2020 energy transition investment figures represent what we hope is the start of a strong trend. While impressive, it is not enough. The International Energy Agency (IEA) estimates that annual investment in clean energy and electricity networks must increase to US$2.7 trillion by 2030 in its Sustainable Development Scenario—three times the equivalent investment in 2019.5 That rises by a further trillion dollars to almost US$4 trillion annually in the 2030s. Radical changes in behaviour and policy are clearly required. Global investment in the energy transition must spike in short order, and sustain that peak if we are to meet the goals of the Paris Agreement.
For our part, BHP will continue to focus on the sustainable production of the resources that are essential to meet the world’s ambitions.
For more information on our Portfolio Analysis read our Climate Change Report.
1 According to a recent BloombergNEF report: https://about.bnef.com/blog/energy-transition-investment-hit-500-billion-in-2020-for-first-time/
2 As above.
3 BloombergNEF Energy Transition investment report and 1Q 2021 Electrified Transport Market Outlook
4 Refer to our Climate Change Report for detail of the assumptions and limitations of our 1.5oC scenario. There are inherent limitations with scenario analysis and it is difficult to predict which, if any, of the scenarios might eventuate. Scenarios do not constitute definitive outcomes for us. Scenario analysis relies on assumptions that may or may not be, or prove to be, correct and may or may not eventuate, and scenarios may be impacted by additional factors to the assumptions disclosed.
5 IEA World Energy Outlook 2020