Introduction HRI research topics by researchers
Naofumi Sakamoto
Senior Strategy Staff,
Global Intelligence and Research Office
The trend toward giving top priority to addressing climate change issues in relation to global energy issues is said to have peaked at COP26 held in Glasgow, UK in November 2021. At COP26, developing countries as well as developed countries declared their commitment to net-zero emissions (so-called “carbon neutrality”) one after another. Soon after, however, the Ukraine crisis occurred in February 2022 and changed the situation. The consequential shift away from Russian natural gas and the struggle for natural gas on the global market has led to an energy crisis in Asian countries. When analyzing energy issues, it is thus necessary to be prepared for such short-term crisis as well as to interpret long-term social and economic trends. In response to that necessity, Hitachi Research Institute (HRI) is using a technique called “scenario planning” for the present study on global scenarios for energy transition towards 2030.
“Energy transition” refers to the shift to a sustainable energy system, and the current main focus is on achieving decarbonization to prevent climate change. In the process of decarbonizing, it was confirmed at last year’s G7 Hiroshima Summit that each country and region should be allowed to take “various and practical pathways,” and this stance was carried over to the G20 India Summit and continues to this day (Figure 1).
Source: Prepared by Hitachi Research Institute from various published materials.
Figure 1: Energy transition and 3E + PT balance
It is important to strike a balance between the “3Es,” namely, “economic efficiency,” “environment,” and “energy security” when taking “various and practical pathways” into account. HRI has added “policy (P)” and “technology (T)” to create a “3E+PT framework” for energy issue analysis.
For example, the EU has launched the “European Green Deal” and is focusing on the “environment” in an effort to strengthen environmental policies within the EU while promoting green industries within the EU. In the meantime, China and India place emphasis on “economic efficiency” in a way that takes into account economic growth and the burden on their citizens while committing to net-zero emissions to fulfill their roles in the international community. The Ukraine crisis has reminded countries and regions that energy security is the foundation of their energy policies. In other words, “policy (P)” is an important element related to all of the 3Es. Moreover, innovation occurring in an area of “technology (T)” could expand the options available to countries and regions. On the contrary, the setbacks in innovation could also be factors that delay the energy transition.
As for scenario planning, factors that determine future scenarios are identified and then normally narrowed down to two. In this study, one factor of the two is identified as “international greenhouse-gas-emissions regulations” and the other as “speed of technology adoption.”
At COP28 in 2023, it was reaffirmed that to achieve the 1.5℃ target stated in the Paris Agreement, each country and region will need to increase its emission-reduction target significantly, namely, from the current target of a 5% reduction by 2030 (compared to 2019 level) to a 43% reduction by 2030 (compared to 2019 level); however, no effective additional measures were put forward. Although it was hoped that the COP28 President would persuade all countries and regions to resubmit their emission-reduction targets for 2030, no such leadership was shown. In light of these circumstances, it can be said that the COP negotiations are dysfunctional.
COP29 (in 2024) is the deadline to set the target amount of financial support for developing countries after 2025. Emerging and developing countries such as India argue that developed countries should take the lead in increasing emission-reduction targets and that financial support for developing countries should be significantly increased. Unless COP29 makes new proposals to resolve this situation, the conflict between developed and developing countries will not change and may become worse.
It is becoming increasingly difficult to achieve the 2030 emission-reduction target (43% compared to 2019 level) required to meet the 1.5°C target of the Paris Agreement. It is expected that the USA, China, and other countries might be unable to achieve their current targets, and the world may move toward the 3.5°C path, and that possibility has been warned about in a report by the Intergovernmental Panel on Climate Change (IPCC) (Figure 2).
Source: Prepared by Hitachi Research Institute from various published materials.
Figure 2: Outlook for global greenhouse-gas emissions
At present, competition over policy concerning decarbonization is intensifying globally. The U.S. Inflation Reduction Act, the European Green Deal Industrial Plan, and Japan’s GX Promotion Strategy aim to induce private investment of around 100 trillion yen (around 680 billion dollars) by investing tens of trillions of yen in technology development and social implementation by the government. Accordingly, even amid the Ukraine crisis, investment in clean energy has accelerated, and the renewable-energy and EV-related fields have grown.
If we look at the timing of technology adoption and the potential of emissions reduction, we can expect that solar power, wind power, and electrification will contribute to emissions reduction until 2030, and hydrogen technology and CCUS (carbon capture, utilization, and storage) will increasingly contribute to emissions reduction from then on (Figure 3). Technological developments are spreading not only across the energy-supply side, such as power generation, but also across the energy-demand side. In particular, as for hydrogen, developments range from hydrogen production to power generation and use in industry and transportation; however, technological developments on the user side are considered to be particularly difficult. To achieve net-zero emissions (decarbonization), it is necessary to achieve all of these technological developments, and the hurdles to overcome are high.
The International Energy Agency has analyzed the technology readiness needed to achieve net-zero emissions. According to the analysis, the proportion of technologies in the prototype and demonstration stages as of 2023 has decreased from 2021, but it still remains at just over 30%, and it is necessary to carefully monitor trends in technological development.
Source: Prepared by Hitachi Research Institute from International Energy Agency “Net-Zero Roadmap” and other materials.
Figure 3: Timing of technology adoption and technology readiness
Four global scenarios for 2030 can be drawn by using the “international greenhouse-gas-emissions regulations” and “speed of technology adoption” mentioned in the previous two sections as factors that determine the scenarios (Figure 4). The “Green Revolution Scenario” (in the upper right) is the one in which the Paris Agreement’s 1.5°C target is achieved; however, at this point in time, this scenario is considered to be unlikely to be realized. The “Current Target Scenario” (in the upper left) and the “Business-as-usual Scenario” (in the lower left) are more likely to be realized; however, which one will actually be realized will require setting quantitative items and monitoring whether the two factors on the axes are strengthening or weakening (x-axis) or speeding up or slowing down (y-axis).
Source: Prepared by Hitachi Research Institute from various published materials.
Figure 4: Global scenarios for 2030
In addition to drawing the above global scenarios, HRI has drawn scenarios for each major country and region. In doing so, while referring to the two above-mentioned factors determining the global scenarios, we consider factors that reflect country- and region-specific circumstances. We will use these global and regional scenarios to identify energy-related business opportunities as well as to implement risk management.
Naofumi Sakamoto
Senior Strategy Staff, Global Intelligence and Research Office
He is engaged in research on policy and industry trends in the fields of energy and environment.
He joined Hitachi in 1992 and has worked on development of global strategy and service-business strategy before assuming his current position.
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