Energy and Climate Change: A Story in 11 Charts

Climate change is often referred to as the defining challenge of our time. How the world meets this challenge has profound implications for the global energy system, economies and the future of our planet.

Although detailed information on energy and climate change is available in the public domain, for many, this information often comes in a single data point or an eye-opening statistic. To navigate the issue, both as investors and stewards of the planet, it’s helpful to see the whole picture.

In a recent report from Morgan Stanley Research, Martijn Rats, Morgan Stanley’s Global Oil Strategist and Head of the European Energy equity research team examined the role of energy in climate change. Rats and his team aimed to present the data as objectively as possible, guided by key questions: How much energy does the world consume? How much of this comes from fossil fuels? Which countries emit the most carbon-based emissions per person—and which are reducing emissions the fastest? And can GDP grow while carbon emissions shrink?

In 2019, the world consumed roughly 584 exa-Joule, or EJ of energy. For some context, if the world's energy consumption of 2019 was spread out over the lifetime of the universe, it would have been sufficient to power 27 light bulbs of 50W each since the Big Bang, 13.8 billion years ago.

Also noteworthy, energy consumption has been growing consistently. Primary energy demand has increased by about 20% over the past decade, only contracting on two occasions over the last 55 years: 1980-82, after oil prices tripled, and in 2009, as a result of the financial crisis.

Primary energy consumption by fuel
(In exajoule, 1800-2019)

Population growth and per-capita GDP often inform oil-demand forecasts. However, it is noteworthy that world population and per-capita GDP surged only after oil’s availability as an energy source.

So, while growing oil consumption has become increasingly problematic, given its carbon-related emissions, oil’s role in providing the energy that has powered rising living standards and average income levels over the past century is also important to recognize.

Global population vs. GDP and oil consumption per capita
(Last 500 years; index: 1950=100)

Data from the Global Carbon Project showed that fossil CO2 emissions (i.e., emissions from fossil fuels and cement production) reached roughly 36.6 billion metric tons (tons) in 2018 and increased to an estimated 36.8 billion tons in 2019. Meanwhile, land-use change (i.e., emissions mostly related to deforestation) added another approximately 5.5 billion tons.

Of this total, the oceans absorbed about 9.3 billion tons, and vegetation on land took in roughly 12.7 billion tons—leaving about 18.8 tons to be absorbed by the atmosphere, causing global temperatures to rise.

Annual carbon emissions, by region
(In billions of metric tons of CO2, 1825-2018)

Over the past 800,000 years, the concentration of CO2 in the atmosphere has mostly fluctuated around 200-300 parts-per-million (ppm), according to data from the Scripps Institute of Oceanography. However, this has increased sharply in the past few decades. Since the 1950s, the atmospheric CO2 concentration has grown from about 310 ppm to 410 ppm in 2019.

Annual mean atmospheric CO2 concentration
(Measured in parts per million over the last 800,000 years)

In 2019, the world's average temperature was about 1.1 degrees Celsius above its average from 1850-1900. Most of this increase occurred in the past few decades. As recent as 2000, this average temperature increase stood at just 0.3 degree Celsius. The chart below shows the evolution of the earth's temperature, combining estimated historical data from the PAGES 2k network going back 2,000 years with recent data from the Met Office Hadley Centre for Climate Science.

Global average temperature anomaly
(In Celsius, last 2000 years, relative to the 1850-1900 average)

The charts below rank the top and bottom 16 countries by change in carbon emissions over the past decade. In the first chart, a mix of developed nations have adopted policies to reduce emissions (e.g., several European countries), along with countries that have endured severe economic declines, resulting in lower emissions. In the second chart, relatively small but fast-growing economies show rapid increases in emissions. 

Change in carbon emissions, top 16 countries, 2008-2018 (%)

Change in carbon emissions, bottom 16 countries, 2008-2018 (%)

Coal companies have already disappeared from stock markets in the U.S. and Europe, and the impact of coal-fired power generation on emissions is well documented. However, global coal consumption has only fallen by 2.5% since its all-time high in 2013; in fact, coal still accounts for 40% of fossil CO2 emissions.

Oil and natural gas account for 34% and 21%, respectively, with the balance made up by the production of cement and “flaring,” or the burning of market-excess natural gas.

Carbon fuel emissions by fuel type
(In billions of metric tons of CO2, 1825-2019)

Data from CIAT Climate Data Explorer show each sector’s contribution to total greenhouse-gas emissions, with electricity and heating at the top, accounting for nearly a third of global emissions. Transportation, the No. 2 contributor, typically gets caught in the crosshairs of the climate issue, and accounts for around 16% of global greenhouse-gas emissions.

Greenhouse gas emissions by sector
(In billions of metric tons of CO2-equivalent) 

As noted, economic growth and rising carbon emissions have gone hand-in-hand, with wealthier countries producing higher emissions. The chart below shows the relationship between per-capita GDP and per-capita CO2 emissions for countries with populations above 15 million people (65 countries in total).

While countries with GDP below $20,000 per person per year show a strong, linear relationship between GDP and emissions, above that, incremental emissions per unit of GDP start to diminish.

Indeed, the relationship between GDP growth and rising emissions may be avoidable. Several deep-decarbonization studies make compelling arguments that the investments needed in clean energies will create more jobs than those lost in fossil-fuel industries, allowing economic growth to continue, while emissions fall. Still, whether this relationship can fundamentally change is yet to be proven.

The chart below shows the trajectory of GDP and emissions over time for a selected group of countries. The UK, where emissions have fallen sharply in recent years, presents an encouraging outlier. It turned the corner around 2006, when carbon emissions were still about 9.3 tons per person; by 2018, they had fallen to 5.6 tons—a 40% reduction in just 12 years.

Carbon emissions per capita vs GDP per capita
(Annual data, 1965-2018)

In the broadest sense, addressing climate change requires replacing fossil fuel consumption with electricity, and generating that electricity from renewable sources. As a result, renewables, such as wind and solar energy, are attracting a lot of attention, and their costs continue to fall.

However, the supply side is only half the equation. To accelerate the transition, energy consumption must also be electrified. The chart below shows the pace at which this is happening. In the mid-1970s, around 10% of the world's energy was consumed in the form of electricity. This increased to about 12% in the mid-1980s, roughly 14% in the mid-1990s, and about 16% in the mid-2000s, and stood at 19.4% in 2018. In short, electricity has gained share at a rate of about 2.2% per decade.

This market share gain will need to accelerate considerably. According to the IEA's Sustainable Development Scenario, electricity will need to account for approximately 31% of final energy consumption by 2040, implying a market-share-gain rate of about 5% per decade going forward. In other words, the pace will need to double.

Electricity share of total final energy consumption
(In percentage, 1975-2040)

For more Morgan Stanley Research on energy and climate change, ask your Morgan Stanley representative or Financial Advisor for the full report, “Energy & Climate Change: A Story in 23 Charts" (Sep 2, 2020). Plus, more Ideas from Morgan Stanley's thought leaders.