Carbon Neutrality in APEC by 2050
Milestones and Stumbling Blocks
David Wogan surveys the progress of APEC members toward their energy goals and discusses their options to further decarbonize. He highlights several key areas to watch and concludes by considering the energy outlook for 2050 and beyond.
NBR is grateful to the Hinrich Foundation for their generous support of this publication.
Energy ministers from the Asia-Pacific Economic Cooperation (APEC) will convene in Seattle on August 15–16, 2023, nearly eight years since their last meeting in Cebu, Philippines, in 2015. The ministers face an energy system that has continued to evolve and simultaneously presents challenges and new opportunities for shared ambition. The 21 members of APEC are still recovering from the Covid-19 pandemic, while the Russian invasion of Ukraine has reverberated across oil and natural gas markets. Meanwhile, supply chain disruptions and rising energy prices are putting upward pressure on inflation, prompting intervention from central banks.
These events have induced a recalibration of the energy trilemma—energy security, affordability, and sustainability—toward a balance with more weight on the first two goals and less on the third. Meanwhile, mitigating and adapting to climate change remains a “wicked problem,” according to the World Bank. APEC members have contributed substantial greenhouse gas emissions but still have potential for decarbonizing their energy systems in a just and equitable manner. This meeting has the added significance of being the first since the adoption of the Paris Agreement in December 2015.
This commentary will survey the progress of APEC members toward their energy goals and discuss their options to further decarbonize. It will then highlight several key areas to watch and conclude by considering the energy outlook for 2050 and beyond.
Progress on APEC Energy-Related Goals
The significance of the energy ministers meeting in August extends well beyond APEC. APEC members collectively account for nearly 60% of global energy supply and CO2 emissions. Moreover, five of the world’s largest energy consumers—China, the United States, Russia, Japan, and Canada—are members. They possess a diverse endowment of natural resources, possessing over 70% of global coal reserves, but less so of natural gas (36%) and oil (23%). This resource portfolio has meant that APEC members have historically been active in energy trade globally, mostly as a net importer of crude oil but also as a net exporter of refined products, coal, and natural gas.
The group’s energy consumption is driven by its growing population and economic activity. Almost four out of ten people in the world live in an APEC member economy, accounting for over 60% of nominal GDP. Within APEC, members in Southeast Asia are some of the most rapidly growing as manufacturing and service activities have increased, supporting GDP growth of nearly 150% over the last twenty years. GDP among this group of economies is expected to more than double by 2050.
Recognizing the value of cooperation, APEC leaders have agreed on two energy-related aspirational goals. First, at their 2007 meeting in Sydney, they agreed on a target to reduce energy intensity by at least 25% by 2035 relative to 2005. Subsequently, in the 2011 Honolulu Declaration, this target was increased to 45% based on demonstrated progress. Second, at the 2014 APEC Ministers’ Meeting in Beijing, an additional target of doubling the share of modern renewables from 6% to 12% between 2010 and 2030 was adopted.
Encouragingly, APEC has made steady progress on these shared goals and is now on track to achieve both before the target years. Energy efficiency policies—essentially doing more for less—have been instrumental in reducing final energy consumption while simultaneously increasing the living standards of hundreds of millions of people. Energy intensity has already dropped 26% between 2005 and 2020, while the share of modern renewables is nearly 10%—just 2% short of the target.
The Potential for Decarbonizing APEC’s Energy System
Despite the progress toward the two shared energy goals, decarbonizing the APEC region requires more ambitious policies, technology deployment, investment, and emissions sinks. Research by the Asia Pacific Energy Research Centre (APERC), the energy think tank for APEC, explores a hypothetical pathway toward decarbonizing the energy system by 2050 for each of the members. In the Carbon Neutrality Scenario (CN), the need for additional efforts beyond existing policies and trends demonstrates for APEC decision-makers the magnitude of change required to realize the energy transition. CN is just one example of a pathway that can achieve carbon neutrality by 2050.
CN projections show CO2 emissions dropping by two-thirds through 2050. Based on APERC’s modeling, key enablers driving the energy transition are increased levels of energy efficiency, fuel switching, and rapid adoption of technologies like carbon capture and storage (CCS) and hydrogen. Emissions reductions are accomplished in two key segments of the energy system: end-use demand sectors and electricity generation.
In this scenario, energy demand decouples from economic growth representing an increase in access to energy services with lower energy and carbon footprints. Fuel substitution away from coal, oil products, and natural gas to electricity plays a foundational role in the transition. Electrifying transportation is a key driver. Additional actions such as phasing out natural gas for heating and cooking in buildings further increase electrification. In the transportation sector alone, around 18 million barrels of oil equivalent per day are displaced by electricity as electric vehicle (EV) sales swell. As an added benefit, electricity is utilized more efficiently than fossil fuels, delivering an additional boost to energy intensity.
Another feature of this scenario is that renewable electricity increases by an impressive 80% relative to current trends, ensuring that electrification of demand sectors is not merely shuffling CO2 emissions to the power sector. Moreover, the latest data shows that deployment of renewable energy capacity in parts of the APEC region, mainly in China, is already outpacing these projections. Renewable electricity is also delivering energy security benefits, allowing APEC members to avoid fossil energy imports and provide more predictable prices for investors and consumers.
Technologies like CCS and hydrogen are still nascent and would need to see additional progress to reach commercial scale. CCS has operated for decades to assist in enhanced oil recovery. Scaling this technology with the primary purpose of removing CO2 emissions requires more favorable economics. Some members, such as Chinese Taipei, have plans for demonstration scale projects to capture CO2 from natural gas power plants. CN makes optimistic assumptions about the commercial availability of CCS. The likelihood of this technology becoming commercially available, however, is highly uncertain. Its utilization in CN is a reminder that, despite rapid deployment of renewable electricity, unabated CO2 emissions will need to be addressed. The likelihood of widespread adoption of hydrogen is even more uncertain currently. If liquefied natural gas (LNG) trade is used as a proxy, several decades of developing supply chains will be required. Unlike LNG, however, demand for hydrogen is less certain. To put potential hydrogen demand in perspective, in CN end-use consumption is marginal compared to electricity.
Navigating the Energy Transition: Key Areas to Watch
The energy transition is marked by known barriers and uncertainties. The transition is disruptive, and many legacy industries may become victim to “creative destruction,” suggesting an opening for governments and industry to capitalize on opportunities. Looking ahead, several challenges and potential stumbling blocks come into sharper focus.
Critical minerals. The focus of the energy transition is shifting from fossil fuels to critical minerals. It is well documented that EV, solar, and wind technologies will increase demand for critical materials. In the APEC region, demand for six critical minerals (cobalt, copper, lithium, nickel, rare earth elements, and silicon) increases two to three times by 2050 in CN relative to current trends, in line with other projections. Eight APEC members have notable operations to mine these minerals, but China is by far the dominant player in global mineral mining and processing. China also controls much of the world’s EV battery manufacturing, as well as the manufacturing of wind turbines, solar panels, energy storage, and electric transmission. There is risk that the energy transition could become a transition from a well-understood cartel (OPEC) to a less understood vertically integrated player (China).
Fossil fuel investments. Another challenge to navigate is the role of fossil fuels, which are still required during the energy transition and beyond. Many industrial processes are designed for fossil fuels as inputs and a source of high-grade heat. In the case of steelmaking, coking coal is one of the two ingredients (along with iron). Balancing sufficient investment in oil and natural gas with decarbonization efforts is critical for a sustainable energy transition. Insufficient investment could amplify supply shocks, with downstream impacts on inflation, while overinvestment runs the risk of stranded assets. The recent price volatility in LNG markets illustrates this risk. In parallel, commercializing industrial processes that require lower temperatures or alternative materials could reduce the need for fossil fuels.
This balancing act becomes more complex when we consider that the APEC region is projected to become a net natural gas importer by 2050. Rapid economic development and rising living standards in the Southeast Asian members mean that consumption will exceed supplies. There is opportunity for other APEC members, including the United States, to reduce domestic consumption and increase natural gas trade. In the United States, natural gas from hydraulic fracturing and horizontal drilling has helped decarbonize the power sector. Similarly displacing coal-fired electricity generation with natural gas in some APEC members could deliver short-term climate benefits on the longer-term transition to renewables. However, fugitive methane emissions are a growing concern that will likely factor in the calculus of the future role for natural gas in the energy transition.
Integrating renewable electricity into the grid. The projected increase in renewable electricity generation is expected to be constrained by two factors: insufficient transmission capacity and the mismatch in variable generation and demand. Connecting generators to demand centers requires not only investment but navigating local permitting requirements and garnering public support. Ensuring around-the-clock electricity availability with high levels of renewable electricity requires short- and long-duration energy storage. With proper planning, transparency, and incentives, APEC members can mitigate imbalances between peak renewable electricity generation and peak power demand (the so-called duck curve).
Increasing interconnectivity between members can mitigate both factors, but many regulatory uncertainties still need to be resolved, including equitable and transparent tariff frameworks. The Association of Southeast Asian Nations (ASEAN) Power Grid, which involves the members of APEC in Southeast Asia, is technically feasible. However, the complex geopolitical relationships and internal dynamics of ASEAN members are barriers to fully realizing the potential benefits.
Industrial policies. After years and decades searching for economically efficient frameworks for decarbonization, a set of policies exercising state capacity have increased the momentum of the energy transition. In the United States, the combination of the Bipartisan Infrastructure Law and the Inflation Reduction Act (IRA) provides hundreds of billions of dollars to research, scale, and commercialize key technologies and supply chains for the energy transition, including critical minerals, CCS, and hydrogen.
Early signs suggest that the IRA is inducing competition from within APEC. Canada recently introduced its own set of incentives to achieve similar goals. Japan, through its GX (green transformation) policy umbrella, has identified key technologies and provided funding to accelerate their development and deployment in Japan and its trade partners. Other APEC members are interested in participating to capture some of the incentives. Outside APEC, the reaction from the European Union has been mixed due to the local content provisions in the IRA. As a trade forum, APEC is well positioned to explore potential mutually beneficial trade linkages around critical minerals, hydrogen, and CO2 emissions.
Progress indicators. Key indicators can spotlight how APEC members are progressing toward decarbonization. Given the central role of electrification in the energy transition, a focus on power sector decarbonization is one indicator of progress. According to CN, the share of low- or zero-CO2 electricity generation will more than double between 2000 and 2050 to around 60%. Another indicator is emissions intensity. A method of decomposing CO2 emissions into macroeconomic and technological parts yields an intensity of CO2 per unit of energy supply. Emissions intensity includes all the energy used in the system and so captures the contribution of all sectors and not just power. This accounting is important to ensure that any additional CO2 emissions from mining and manufacturing batteries, EVs, and renewable electricity technologies are not lost. Calculations in CN show an emissions intensity reduction of around 60% from 2000 to 2050.
Looking Ahead to 2050 and Beyond
The transformational changes needed to transition the energy system by 2050 are underway but require additional momentum. As shown by APERC’s modeling, reaching a substantially decarbonized power sector requires an additional 220 gigawatts per year of clean capacity by 2050—the equivalent of adding APEC Southeast Asia’s power sector every year. APEC is around 25% of the way toward achieving this goal. On the demand side, EVs are poised to enter a phase of “spontaneous adoption,” further accelerating the shift from fossil fuels to electricity.
Looking ahead, APEC members will continue navigating challenging geopolitics and macroeconomic conditions, of which energy and climate change are two pieces. They are well positioned to cooperate on ensuring reliable, affordable, and secure energy for their citizens in ways that meaningfully address the global challenge of climate change. APEC members have demonstrated success in identifying opportunities to make progress on the energy transition, notably the two energy goals. They now must explore ways to build on these successes, through either establishing new aspirational goals or expanding energy-related trade for hydrogen, critical minerals, and captured CO2.
As evidenced by the ongoing geopolitical challenges, a successful energy transition will be one that balances the three pillars of the energy trilemma. Crafting flexible policy frameworks that adapt to the changing landscape and are evidence-based is critical for supporting a sustainable energy transition.
David Wogan is Assistant Vice President at the Asia Pacific Energy Research Centre. Dr. Wogan’s research interests are the economics, technologies, and policies of the energy transition with a focus on the Asia-Pacific and the Middle East.
Note: The views expressed in this commentary are solely those of the author and do not reflect those of any entities the author represents.
 Modern renewable energy demand is defined as the consumption of renewables in end-use sectors (excluding traditional biomass) and includes the proportion of electricity and heat consumption that is attributable to renewable sources.
 “Bolstering Supplies of Critical Materials for Decarbonization Technologies” (session at 8th IEEJ/APERC Joint International Energy Symposium, Tokyo, April 27, 2023), https://eneken.ieej.or.jp/en/report_detail.php?article_info__id=11095.
 International Energy Agency, “The Role of Critical Minerals in Clean Energy Transitions,” World Energy Outlook Special Report, May 2021, https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions.