The past few years have been a turbulent and challenging period for the global energy market, which faced unprecedented challenges that affected energy supply, demand, prices, trade and security. Against this backdrop, global energy-related greenhouse gas emissions also underwent significant changes, reflecting both the progress and the problems of the energy transition. This article will analyse the trends and features of global carbon emissions in the past year, and explore their implications and significance for global climate change and sustainable development from an investor’s perspective.

Summary

• According to the International Energy Agency (IEA), global energy-related carbon dioxide emissions increased by 0.9% (321 million tons) in 2022, reaching a new high of 36.8 Gt.
• Although global carbon emissions showed an upward trend, there were significant differences among different regions and industries. In 2022, carbon emissions increased in North America and Asia-Pacific (excluding China), while carbon emissions decreased in Europe and China.
• The energy industry remains the largest source of carbon emissions, accounting for about 40% of the current carbon emission structure. Coal consumption increased mainly in emerging markets and developing economies in Asia. The power industry was the industry with the most coal consumption increase, accounting for 92% of the coal consumption increase.

Growth lower than expected, but still reached a historical high

According to the IEA’s estimates, global energy-related carbon dioxide emissions increased by 0.9% in 2022, increasing by 321 Mt (million tons) to 36.8 Gt (billion tons). This growth rate was much lower than the rebound of more than 6% in 2021, and also lower than the global GDP growth of 3.2%. After experiencing a decline in energy demand due to lockdowns during the pandemic, carbon dioxide emissions fell by 5% in 2020; however, they quickly rebounded in 2021 due to the base effect, and by 2022 global carbon emissions had resumed the trend of the past decade, gradually diverging from the speed of economic growth.

Generally speaking, economic growth will drive energy demand and consumption growth, thereby driving greenhouse gas emission growth. However, this relationship is not fixed, but is affected by factors such as energy efficiency, energy structure, energy policy, etc. In the past decade, global energy-related carbon dioxide emissions have shown a certain degree of decoupling from global GDP, that is, GDP growth rate is higher than carbon dioxide emission growth rate, reflecting that the cleanliness and efficiency of the global energy system have improved. In 2022, this decoupling phenomenon reappeared: global GDP grew by 3.1%, while global energy-related carbon dioxide emissions only increased by 0.9%.

This trend is encouraging to some extent, because it shows that the world has made some progress in reducing “carbon intensity”, which refers to the amount of carbon dioxide emitted per unit of GDP. It reflects the performance of a country or region in terms of energy efficiency and structure. But on the other hand data also exposed challenges: although carbon emission growth was lower than expected, it still reached a historical high: meaning that the world still relies on high-carbon energy to meet energy demand.

Energy-related greenhouse gas emissions

The main reason for the increase in global carbon emissions in 2022 was the increase in coal and oil consumption. Due to tight natural gas supply, especially after Russia’s invasion of Ukraine triggered an energy crisis, many countries experienced a phenomenon of switching from natural gas to coal, resulting in a 1.6% increase in coal consumption to 15.5 Gt, setting a new record high. Coal consumption increased mainly in emerging markets and developing economies in Asia, especially India, Indonesia, Vietnam and other countries. Among them, the power industry was the industry with the most coal consumption increase, accounting for 92% of the coal consumption increase.

On the other hand, due to rising oil prices and recovery of aviation industry, oil consumption also increased by 2.5%, reaching 11.2 Gt. Among them aviation industry accounted for half of oil consumption increase as air travel has gradually recovered to 80% of pre-pandemic levels in 2019. In addition automobile industry also drove oil consumption growth: although electric vehicle sales reached 10 million units accounting for 14% of global car sales automobile industry’s oil carbon emission growth potential is still not low. Transportation is the industry with most oil consumption increase accounting for 95% of oil consumption increase.

In contrast to coal and oil consumption increase natural gas consumption decreased by 1.6%, dropping to 7.3 Gt. This was mainly due to a sharp drop in natural gas consumption in Europe and Asia-Pacific regions which decreased by 13.5% and 1.8% respectively. Natural gas prices in Europe reached a record high, leading users to save gas or switch to other energy sources. Asia-Pacific region’s liquefied natural gas (LNG) spot prices also soared, suppressing natural gas consumption. On the contrary, natural gas emissions in the United States and Canada increased by 5.8%, relying on natural gas power generation to meet power demand during the summer heat wave.

From an overall industry perspective, energy (power) and transportation carbon emissions increased the most, while industrial and construction sectors carbon emissions decreased.

Significant differences among regions

Although global carbon emissions showed an upward trend, there were significant differences among different regions and industries. According to IEA’s 2022 data, carbon emissions increased in North America and Asia-Pacific (excluding China) in 2022, while carbon emissions decreased in Europe and China.

European Union

The European Union is the region with the most active and strict energy saving and emission reduction policies in the world: the “European Green Deal” policy framework launched in 2022 aims to achieve the goal of carbon neutrality by 2050. This policy framework includes a number of measures, such as expanding the coverage and carbon price level of the carbon emission trading system (ETS), setting higher renewable energy and energy efficiency targets, promoting the development and popularization of clean energy technologies such as electric vehicles and hydrogen energy, strengthening carbon border adjustment for polluting imported products, etc. These measures have had some impact on the energy demand and structure of the European Union.

After the outbreak of the Russo-Ukrainian war, the overall carbon emission was directly affected by the challenges of energy supply; coupled with Europe’s warmest winter in nearly 30 years, carbon emissions from heating demand decreased directly. But behind this also implies another problem: as global warming leads to more frequent extreme weather events, it may cause more carbon emission demand in the future.

China

China is the world’s largest carbon dioxide emitter, accounting for a quarter of global energy consumption. Between 2021 and 2022, China’s energy-related emissions remained relatively flat, decreasing by 0.2% (23 Mt) to 12.1 Gt. The overall decline in 2022 was the first decline since 2015 when structural reforms drove emissions down.

The reduction of carbon emissions in 2021-2022 was mainly due to the decline in industrial production, especially cement and steel and other high-energy-consuming industries. Due to the government’s strict regulation of the real estate market, construction activity also decreased significantly, reducing the demand for raw materials with high carbon emissions during production such as cement and steel. Objectively speaking, pandemic prevention and control measures and restrictions on cross-regional mobility also further suppressed industrial and transportation energy consumption and emissions.

United States

The United States is the world’s second largest carbon dioxide emitter, whose emission growth in 2022 was mainly affected by factors such as increased heating and cooling demand due to extreme weather, increased natural gas consumption, etc.: facing last year’s natural gas price hike most countries reduced their use of natural gas but US natural gas consumption increased instead. Although US significantly increased its solar and wind power generation capacity and output in 2022, and achieved some energy demand switching from coal to natural gas, it still failed to offset emission growth. In addition US transportation emissions also increased driven by aviation industry and road transport industry.

On the other hand US power sector emissions decreased by about 20 Mt thanks to solar and wind power generation increase of about 95 TWh.

Further deployment of clean energy technologies

In 2022 global clean energy technologies development and application made significant progress non-fossil fuel power generation total exceeded coal power reaching 39% of total power generation. In the long run clean energy will also gradually become the main trend; in our previous article “Steel and Sea Level” we mentioned steel production decarbonisation development direction energy saving and emission reduction trend will be achieved from energy production process and other aspects. But in foreseeable future controlling carbon emissions will be a major challenge for society: in order to achieve various carbon emission targets world needs to take more active and effective measures in future.

In past year solar and wind power generation’s significant increase contributed about 465 Mt of carbon dioxide reduction other clean energies such as renewable energy electric vehicles geothermal etc contributed about 85 Mt of carbon dioxide reduction. If there was no deployment development of related clean energies then energy sector’s carbon emission growth rate would be three times current rate. At same time economic activity slowdown also directly led to about 155 Mt of emission reduction mainly concentrated in decline of energy-intensive industrial production mainly concentrated in China European Union Japan Korea and North America.

Thoughts and Conclusion

As global pressure to reduce carbon emissions increases investors need to pay more attention to carbon emission risks and incorporate them into investment decisions. For example some countries have implemented or plan to implement measures such as carbon border adjustment, carbon tax, carbon emission trading, etc., to regulate and restrict the carbon emissions of enterprises and products. These measures will have an impact on the cost, competitiveness and profitability of enterprises, especially those in high-carbon industries such as energy, steel, cement, etc. Investors need to assess the exposure and sensitivity of their portfolios to carbon emission risks, and adjust their asset allocation and investment strategies accordingly.

On the other hand, investors can also seize the opportunities brought by the energy transition and the development of clean energy technologies. As the world strives to achieve the goals of the Paris Agreement and net zero emissions, there will be a huge demand for clean energy solutions and low-carbon products and services. Investors can identify and invest in enterprises that have a clear vision and strategy for energy saving and emission reduction, that have a leading position or potential in clean energy technologies, or that can provide green and sustainable products and services. These enterprises will have a competitive advantage in the future market and benefit from the policy support and consumer preference for low-carbon development.