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Morgan Stanley's $50 trillion analysis

By Jakob Jensen — — Posted in market

Morgan Stanley estimates that getting the world carbon neutral by 2050 requires $50 trillion in investments, according to Bloomberg, Forbes and many other influential publishers.

By 2050 electricity's share of global energy consumption may increase from the present 20% to 40%. Still, heat-driven processes will keep their majority share. Despite this, Morgan Stanley seems to find the world primarily needs investments for electrification.
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Morgan Stanley's analysis foresees $14T needed for renewables to meet 80% of electricity demand, $11T for electrification of transportation, $2.5T for carbon capture and storage, $20T for hydrogen for power, transportation and production, and $2.7T for biofuels for transportation.

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$50 trillion is a lot of money, but not more than will be spent on energy investments towards 2050 anyway, as the world spent $1.8 trillion just in 2018. But the spending needs to be directed to other assets than today where only $0.3T of the $1.8T in 2018 was spent on renewables.

In our present energy system, electricity consumes one-fifth of global energy demand. A quarter of this fifth is produced by renewables. Of this quarter, one-third is produced by wind turbines and solar cells combined, while the remaining two-thirds are produced by hydro turbine generators.

In a 2050-carbon neutral world, this proportion is expected to have increased to 40% via electrification of transportation and electrification of low-temperature heat production.

If Bloomberg’s version of Morgan Stanley’s analysis is correct, then going from 5% to 40% of the demand being supplied by renewable electricity will require $40-45 trillion. Hence, the rest of the needed changes in energy production can apparently be fixed for just $5-10 trillion.

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Hint to investors and governments distributing grants and financial incentives: All other things being equal, if Morgan Stanley is right then, with the global energy market having a total estimated demand of 1000 EJ of energy by 2050, investments in heat-driven technologies are looking at an 'opportunity-to-cost' ratio of 600:5, whereas the same ratio for investments in electrification, carbon capture, and hydrogen is 400:45.

Technology-wise Morgan Stanley believes the emissions from industrial heat will be fixed by carbon capture and storage (CCS) and by sustainable hydrogen production. Neither of which there exist any proven nor scalable nor cost-efficient solutions today:

  • The use of CCS could reduce CO2 emissions from the stacks of coal power plants by 85–90% or more, but some claim it will have no effect on CO2 emissions due to the emissions from mining and transporting coal. It may actually increase all ecological, land-use, air-pollution, and water-pollution impacts from coal mining, transport, and processing, because the CCS system requires 25% more energy, thus 25% more coal combustion, than does a system without CCS.

  • Hydrogen-based solutions for electricity-to-hydrogen-to-electricity has the fundamental challenge that thermodynamic laws dictate that only around 35% of the input energy is retained as chemical energy through the current electrolysis process, with the remaining 65% lost as low-grade heat.

The biggest contributor to sustainable electricity production will be solar cells, according to Morgan Stanley. A significant task since the $1.5 trillion invested in solar cells to date produces just 0.3% (500 TWh) of total global energy consumption.

Assuming solar cells will eventually produce 80% of the 54,000 TWh of annual electricity demand expected by 2050 and assuming an average energy production of 100 GWh/km2/year, the world will need to install some 432,000 km2 (an area slightly bigger than the state of California) by 2050.

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Wind turbines may also deliver some electricity by 2050, but since electricity from wind turbines by 2050 is expected to be produced at $22/MWh while solar cells will be at half of that, and since wind turbines face fierce opposition from people living with a view to the turbines, it’s hard to foresee their success in the long run.

As for biofuels to sustainably offset the aviation industry’s estimated 2050-consumption of 34 EJ, this industry alone will require an area for biomass production equal to the area of France, Germany, and Spain combined. And 9 times the existing annual global biofuel production.

The purpose of this article has been to highlight heat's very significant - but also very overlooked - role in global carbon emissions. The purpose has not been to bash any electricity-generating renewables. The world needs as many renewables as possible as fast as possible. Nor has it been to bash Morgan Stanley. Morgan Stanley's approach to analyzing methods for mitigating carbon emissions is no different from most other opinion-makers. But with limited resources available and only a short time to act, we cannot afford to allocate our resources to solutions we simply assume are right. I hope this article can be a step in initiating a more cost-benefit focused debate.

Disclaimer

I have not been able to track down the original analysis from Morgan Stanley (if you can find it in the public domain, please send me a link), so my analysis of their analysis is based on Bloomberg’s article describing the analysis.

Consequently, I may rightfully be wronged for targeting Morgan Stanley if indeed it is the journalist(s) that got the story wrong. But since Morgan Stanley is highly regarded as a trustworthy source of market insights and trend analysis, and since Bloomberg’s article have been copied by many other renowned publishers such as Forbes, who’s writings influence where politics go, where money flows, and therefore where efforts go, it’s important to do some fact-checking.

Unless the original analysis tells another story than the Bloomberg story, I plan a follow-up to this article, taking a closer look at how and why Morgan Stanley may not only be off in their prediction of climate change technology fixes but more fundamentally in how the climate challenge might be addressed smarter. Perhaps even at a lower cost.

'Tunnel Vision' is the working title for that analysis which should be ready for your inbox in a week or two from now.

Thank you for reading,

Jakob Jensen

Numbers behind the numbers

Global energy consumption (2050):

1,000 EJ (13,511 Mtoe = 566 EJ in 2017, cagr: 1,75%) [BP + my guestimate]

Biomass: 15t/ha [IRENA], 18GJ/t [Engineering Toolbox] (15 x 18 / 10,000 x 1,000,000 = 27,000 GJ/km2) (1 EJ = 1,000,000,000 GJ).

Aviation fuel consumption (2050): 35 EJ [McKinsey]

References

Morgan Stanley Says These Firms Will Benefit From Climate Change, Bloomberg 2019

Statistical Review of World Energy, BP 2018

Global energy investment..., IEA 2019

Providing All Global Energy..., Energy Policy 2010

Hydrogen Don't Give Up, PV Magazine 2018

Global Cumulative Installed PV Capacity, Statista 2017

Renewable Energy, Our World In Data 2018

Statistics - Electricity, IEA 2019

Clean Energy Investments Exceeded $300 Billion..., Bloomberg New Energy Finance 2019

Energy Production And Changing Energy Sources, Our World In Data 2018

Global Energy Transformation - A Roadmap To 2050, IRENA 2019

Coal Is Being Squeezed Out of Power by Cheap Renewables, Bloomberg New Finance 2018

Transport Biofuels, IEA 2019

Global Energy Perspective, McKinsey 2019

Environmental Trends In Aviation to 2050, US DOT & EASA

CO2 emissions from commercial aviation 2018, ICCT 2019

Conversion Factors for Bioenergy, NC State

Solid Biomass Supply For Heat And Power, IRENA 2019

Analyse Af Bioenergi I Danmark, Energistyrelsen 2014

Biomass Energy, engineeringtoolbox.com

About me

I have spent the better part of 20 years investing in cleantech startups. During my career I have probably seen at least 3,000 business proposals, including Heliac's which I was introduced to in 2016 when I headed Climate-KIC Nordic's accelerator program. I found -and still find - Heliac's solution to be by far the best new solution I've ever come around, which is why I joined the company in early 2017.

Disclaimer: I have not double-checked all my sources and I am not an expert in all areas mentioned in the articles. I may therefore have reached conclusions that wiser men and women may know to be inaccurate. If so, I trust they will let me know, so I can become a bit wiser too.

This insight was originally posted in LinkedIn