Fossil fuels in the energy system
Fossil fuels – especially coal, oil and natural gas – provide electricity, heat (in industrial production processes and space heating in buildings) and used for transport. They also serve as a raw material for a range of different products such as chemicals, plastics and steel. Fossil fuels have been and still are crucial for the energy system. In general we see that the share of these fuels in the primary demand for primary energy has not changed much since the turn of the century. Although new successful technologies, powered by wind and solar PV, are increasing their share and helping to make energy supply more sustainable, fossil fuels still provide around 80 percent of the world’s energy consumption, and three quarters of the EU’s energy consumption.
The burning of fossil fuels is the largest source of emissions that contributes to the greenhouse effect enhanced by human activities. Extraction and burning of fossil fuels also leads to other emissions such as those from sulfur dioxide and toxic metals such as arsenic, cadmium and mercury, which are harmful to health and the environment. To prevent negative effects of climate change, governments around the world are now making efforts to significantly reduce greenhouse gas emissions from fossil fuels. Efforts to reduce emissions are generally focused on replacing fossil fuels with renewable energy sources, increasing energy efficiency and changing infrastructure in sectors such as transport and the built environment. Considering the world’s continuing dependence on fossil fuels, many argue that additional efforts are needed, such as capturing carbon from the air and placing it in underground storage. This is often referred to as ‘carbon capture and storage (CCS)’. There are a few projects on a commercial scale worldwide that capture carbon dioxide. High costs currently prevent the use of carbon capture. See also the discussion of CO2 storage and reuse.
Further developments towards a less fossil fuel-based energy system depend to a large extent on the level of policy ambition and technological innovation that will determine the trajectory of energy-related emissions. The reduction of emissions needed to achieve the climate objectives can only be achieved by improving efficiency, by drastically changing the mix of energy carriers in predominantly fossil demand towards a carbon-free energy mix consisting of renewable and nuclear energy, and by applying CCS . Although the share of nuclear energy in the energy mix has decreased somewhat, the share of renewable energy sources worldwide is steadily increasing.
There are major differences in emission factors between the different fossil fuels. Coal emits the most CO2 per unit of energy, followed by oil (about a third lower than coal) and natural gas (with around half of coal emissions). In several countries, we see a shift from coal and oil to natural gas as a way to reduce greenhouse gas emissions from fossil fuels. At the same time, there is an increasing use of cheap coal, especially in emerging economies.
The gradual phasing out of fossil fuels presents many challenges, in particular the strong dependency on these fuels in many countries around the world. Despite this, the global investment climate for fossil fuels is changing rapidly.
On the one hand, investors and the financial sector are keeping a close eye on trends affecting the speed and shape of the global energy transition – from reforms to fossil fuel subsidies and taxes and the introduction of CO2 emissions pricing to falling costs of renewable energy and storage technologies, increasing electrification of the energy system and increasing uptake of electric vehicles. These sectors want to reduce their exposure to polluting assets and investments that decrease in value during the transition, and anticipate policy shifts that could improve the relative competitiveness of low-carbon technologies and services.
On the other hand, the decrease in the use of fossil fuels can lead to negative effects, such as an increase in electricity prices, due to new investments that are needed to replace the share of fossil fuels in the electricity mix with alternative energy sources. Another consequence of the gradual phasing out of fossil technology is the loss of employment in fossil-fuel-based sectors, including mining in some regions. People in these sectors are likely to oppose measures that threaten their sector.