6.2 Energy demand by sector


The same data for energy demand can be plotted as a function of economic sector (Figure 6.3). Overall variation in energy demand by sector across net-zero scenarios is clearly linked to long-term goals, even in 2030, highlighting the importance of early reductions to reach stringent targets. On the longer term, this contrast between net-zero scenarios and the reference is steep, as the former primarily imply increased energy productivity. It is important to note again that this should not be interpreted as a proportional reduction in the provision of energy services, but rather as a demand met with higher efficiency low-carbon energy sources, notably electricity. For instance, this is the case for the dramatic expansion of heat pumps used for space heating in the building sector, which is much more efficient than the current mix of heating technologies.

Not surprisingly, the relative intersectoral evolution of this demand for REF and CP30 closely follows recent historical trends. In particular, there is a continuous growth in the relative (and absolute) importance of transport. Between 2016 and 2030, its share rises from 37% to 42% to 43% of energy demand for all scenarios, taking a slightly larger part in the NZ scenarios. This share increases to 46% for REF by 2060, while it plateaus at 39 % for CP30 and drops as GHG reduction efforts are undertaken, to a low of 34% to 36% by 2040 for NZ45, by 2050 for NZ50, and by 2060 for NZ60. In the first two NZ scenarios, it is interesting to note that the share of energy demand begins to increase after hitting a low, around 34%, and rising back to 36% for NZ45 in 2060, to account for expected growth in demand for transport. This indicates that similar energy gains by electrification can be achieved as the demand for service grows in line with the population and GDP.

Figure 6.3 – Final energy consumption by sector #

6.2.1 The residential and commercial sectors

By 2030, the residential and commercial sectors (Figure 6.4) already show notable differences in the energy mix according to the various scenarios. These differences shrink over the following decade as all NZ scenarios rapidly decarbonize this sector, primarily through electrification with heat pumps, resulting in an overall increase in energy productivity. REF and CP30 show a very similar evolution over the next decades. The total energy demand in CP30, for example, is at most 4% lower than in REF over the whole period, with identical energy mix that shows a slightly faster reduction in fossil fuel usage at the expense of electrification by 2040, with a drop of 25 % in gas. Yet, by 2060, it still represents 58 % of 2016 demand.

However, by 2030, both NZ50 and NZ45 see the total energy demand drop by 13% to 15% with respect to REF. The same year, CP30 total energy demand is projected to fall by only 1% and that for NZ60 by 9%. By 2040, the three NZ scenarios show an increase in energy productivity of 18% to 20% with respect to the REF in the same year; all converge to 22% by 2050. 

This increase in productivity is accompanied by a rapid decline in the use of fossil fuel, including natural gas, in favour of electricity in all scenarios. In 2030, natural gas demand drops by 3% to 5% for REF and CP30 with respect to 2016, and by 14% to 32% for NZ scenarios. This change is projected to accelerate over the following decade. Even for REF, demand falls by more than 10% by 2040 with respect to 2016; the reduction reaches 47%, 68%, and 70% for NZ60, NZ50 and NZ45 respectively. By 2050, natural gas represents only 8% to 4% of the 2016 demand for these scenarios. 

The dominance of electricity in these sectors is unmistakable: in NZ scenarios, electricity accounts for more than 95% of total consumption in both 2050 and 2060, which requires the virtual elimination of both natural gas and biomass as energy sources for these sectors. Furthermore, results show only a small share for decentralized electricity in all scenarios, especially for net-zero scenarios.

Figure 6.4 – Final energy consumption in the residential and commercial sectors #

General observations:

  • The projections show that natural gas is not a transition energy for buildings since its total use declines in all scenarios and by as much as 50% to 70% by 2040 in NZ scenarios.
  • Carbon pricing alone, as seen in CP30, is not sufficient even to initiate the transformation by 2030. In fact, this scenario does
    not significantly promote electrification due to insufficient price benefits associated with the upfront investment needed to replace fossil fuels with electricity.

6.2.2 The industrial and agricultural sectors

In net-zero scenarios, results for the industrial sector (Figure 6.5) also show an increase in the use of electricity and hydrogen at the expense of natural gas and, to a lesser extent, coal and coke in 2050 and 2060. Although the carbon pricing in CP30 is enough to bring similar changes for coal and coke, it does not significantly modify natural gas use with respect to REF, with a consumption only 15 % lower than REF between 2030 and 2060. While all NZ scenarios clearly present a lower overall demand than REF, illustrating the importance of direct and indirect energy efficiency (chiefly through electrification) in contributing to long-term GHG emission reduction efforts, they also point to the impacts of NZ targets on fossil fuel production, which contribute to an overall reduction in energy demand for the industrial sector. 

In fact, projections for 2030 show lower energy consumption for all energy sources except biofuels in all NZ scenarios with respect to REF, including 15% lower electricity consumption and a 25% to 35% reduction in fossil fuel consumption. The rapid slowdown in the fossil fuel production sector is discussed in Chapter 7.

However, by 2040, differences in the various NZ scenarios indicate a broader transformation of the industrial sector, with increased use of electricity and hydrogen for NZ50 and NZ45, at the expense of natural gas with respect to NZ60. These differences shrink by 2050, with all NZ scenarios showing much similar energy consumption patterns for the industrial sector, dominated by electricity, bioenergy and hydrogen. While the share of these energies remains fairly constant over time for REF (around 53%) and CF30 (around 60 %, between 2030-2060), it climbs from a significant 55% in 2016 to 84% in NZ50 and NZ45 in 2050, remaining stable afterwards, and leaving 15% of fossil fuel usage.Without going into more specific details, which are covered in Chapter 8, study of these trends suggests that some applications cannot easily be electrified with current technology because of both costs and the availability of technological substitutes. Important gains in this sector will require breakthroughs in new technologies and processes for which costs cannot be easily evaluated. As discussed in the previous paragraph, owing to this mix, a significant quantity of emissions remains for the sector: optimization leads to a large compensation for these emissions through equipping plants with carbon capture technologies, although uncertainty about these technologies means they should be treated with care. Emission capture is discussed more extensively in Chapters 8 and 12.

Figure 6.5 – Final energy consumption in the industrial sector #

Energy use in the agricultural sector, which includes heating and lighting but excludes transport and machinery (which are categorized under the transport sector), is almost completely electrified in all scenarios, including REF and CP30, by 2040, in line with heating production in other sectors (Figure 6.6). While both REF and CP30 project that electricity will represent 75% of all energy demand by 2040, oil disappears almost completely by 2030 for CP30, leaving natural gas to fulfil the remaining 25% of energy demand.  

Interestingly, the optimal cost pathway suggests that natural gas usage for NZ60 could increase for a short period around 2030, to vanish by 2040. Nevertheless, by 2040, all NZ scenarios project that electricity will fulfil more than 85% of the energy demand, reaching 95% by 2050, with the remainder provided by fossil fuels. It should be noted that even with low-emission electricity as its main source of energy, the sector produces significant remaining emissions from non-energy sources. This point is discussed in Chapter 8.

Figure 6.6 – Final energy consumption in the agricultural sector #

General observations:

  • The change in energy demand profile will impact energy production, contributing to a rapid decrease in fossil fuel demand in the industrial sector.
  • Energy demand in the industrial sector is already dominated by electricity and bioenergy, which suggests that contrary to the building sector, there is little low-hanging fruit. 
  • The electrification of heat in agriculture, while cost competitive, may require specific programs and attention as heat is used for a number of different purposes, some of which, such as drying harvests, require considerable power. The use of locally produced bioenergy, which at this scale is not included in the model, could certainly complement electricity use in this sector.

6.2.3 Transportation

The transportation sector shows the sharpest difference in energy demand between NZ scenarios and REF and CP30 (Figure 6.3). How this energy demand will be met varies across scenarios even on the 2050 horizon, suggesting a higher cost for some transformations and a more varied set of technologies to meet needs. Also to be taken into account are the considerable uncertainties about the technological solutions yet to be proposed (Figure 6.7).

Figure 6.7 – Final energy consumption for the transport sector #

REF is very conservative as concerns the transformation of the transport sector. The use of electricity remains marginal by mid-century and gasoline and diesel usage continues to trend upward until 2030. While CP30 is not sufficient to stop growth in diesel consumption, it favors a more important, but slow, electrification that leads to a 55 % reduction in the use of gasoline by 2050, highlighting the high cost of deeply transforming the sector. This is a significant departure from the results in our previous Outlook, which showed a reduction in gasoline and diesel demand even in the business-as-usual scenario. This difference derives in large part from more conservative projections than in 2018 for efficiency improvements for gasoline and diesel engines, which result in a larger quantity of fuel needed to meet demand.

All scenarios show only a low penetration of electricity in the transportation sector by 2030 (less than 3% even in NZ45), but, for NZ trajectories, a rapid takeoff after that, with scenarios diverging much more from 2040 on. While the lower cost of bioenergy and blending mandates in place helps biofuels make a rapid and sizeable contribution to decarbonizing the sector before 2030 (+175 % in NZ45 and NZ50, and +232 % in CP30), biomass availability and the smaller GHG reductions on a life-cycle basis limit their increase over the longer term. Moreover, after 2030 most of the increase in the use of bioenergy is for biofuels for off-road transport, a category that includes agricultural vehicles and on-site transportation in the commercial and industrial sectors, where the cost of electrification is higher.

The energy mix for the entire sector presented in Figure 6.7 hides important variations, depending on the vehicle category and the transport mode. In passenger transport, light trucks’ share of the vehicle stock increases dramatically at the expense of cars. This leads to slower decarbonization of the sub-sector (Figure 6.8) since the electrification of light trucks takes off only after 2030 due to higher costs (while at least 35% of cars are electrified by 2030 in NZ45 and NZ50).

Figure 6.8 – Energy consumption by passenger transport mode #

The technology mix is more varied in the transport of merchandise. While light and medium commercial transport similarly transform the passenger sector, heavy transport uses a more diverse set of technologies, including some hydrogen, natural gas plug-in hybrids, all-electric trucks, and—to a lesser extent—catenary lines and plug-in diesel-electric hybrids (Figure 6.8). The picture for merchandise transport is drastically different in REF and CP30, where the only change over time is a slow penetration of natural gas alongside diesel (Figure 6.9).

Figure 6.9 – Demand satisfaction by technology in heavy-duty merchandise transport #

Other transport subsectors present different results. Aviation remains largely supplied by aviation fuel, with biofuels playing a very small role in net-zero scenarios, chiefly from 2050. Rail uses biofuels to help it decarbonize somewhat at first, but a larger share is then taken up by hydrogen as we near the net-zero target year. Hydrogen plays a key role in rail transport, accounting for more than 40% of total consumption in 2050 for NZ45 and NZ50. This growing role continues to increase rapidly beyond that horizon, with hydrogen becoming the main source in 2060 for all net-zero scenarios. Finally, maritime transport is decarbonized by increasing biofuels and hydrogen, and more importantly, by replacing gasoline and diesel with natural gas, with electricity unable to act as a viable substitute. 

Overall, as in the previous edition of this Outlook, these results illustrate the crucial importance of the transport sector in GHG emissions reductions, together with the need for decisive policy action to help achieve substantial GHG reduction targets. The high costs lead to difficulties in transforming the sector since electrification remains expensive and biofuels offer only short-term and limited advantages in terms of GHG reductions. It is worth noting that these cost considerations primarily affect the pace of the transformation. In the case of road transport, the extensive penetration of electricity is found in all NZ scenarios once neutral emissions are reached. Accordingly, changes to the cost of these technologies in some transportation subsectors could accelerate this pace.

General observations:

  • The electrification of the transport sector projected for NZ scenarios leads to a 50% reduction in total energy demand, which demonstrates the remarkable inefficiency of combustion engines, imposed by the laws of thermodynamics. 
  • The transformation of the transport sector depends on a number of competing electric-based technologies that have not yet reached the market. Because of the importance of standardization and the need for technology-specific infrastructures (recharging, catenaries, hydrogen), the relative weight of these technologies will be largely determined by political choices rather than cost.