The Role of Fossil Fuels in the Pursuit of Decarbonization

It is safe to assume that most if not all countries have an interest in reliable, affordable, and climate-friendly energy sources. While compelling as a general statement, how to deal with the trade-offs among these objectives is always a central question in considering energy policy. Climate change has understandably gained weight in energy policy discussions, particularly since the adoption of the Paris Agreement in 2015. In this regard, the joint communiqué issued at the 2023 G7 Hiroshima Summit might seem like an attempt to rewind the clock by noting that “investment in the gas sector can be appropriate,” even though it implies that continued investment in fossil fuels is a near-term solution to deal with the current energy crisis caused by the Russian invasion of Ukraine. The reality of the energy demand landscape overall is even more controversial: Fossil fuels are a critical, practical bridge toward a decarbonized future until nonfossil energy sources become competitive and reliable enough to replace them. The priority should therefore be the development and dissemination of technologies to process fossil fuels as cleanly as possible.

The Developing World at the Center of Global Emissions

The Global South is projected to become the center of the world economy, and thus, the main emitter of greenhouse gas (GHG). As the graph below shows, the International Energy Agency (IEA) estimates the share of global emissions from regions other than North America, Europe, and Japan will continue to grow and reach three fourths of global emissions by 2050 if each nation continues to exercise existing policies and those under development. The crux of future mitigation efforts needs to be taken by developing countries.

Historical and Projected Total CO2 Emissions by Region

But the developing world appears to prioritize other economic challenges. The United Nations’ MY World 2030 survey shows that people in G7 countries selected combating climate change as the most immediate concern among the 17 objectives under the Sustainable Development Goals. Between 2016 and 2022, over 50 percent of respondents from G7 countries included climate action in their top six choices of immediate concerns. However, while those in non-G7 countries also identified climate change as one of the priorities, with 33 percent voting for it, they prioritized other issues such as health (62 percent), economic growth (56 percent), education (51 percent), gender equality (47 percent), clean water (43 percent), and the fight against poverty (40 percent).

This gap indicates that advanced economies, or the Global North, cannot try to impose strict climate actions on the developing world that could negatively impact economic growth, which would further divide the international community with respect to combating climate change and promoting decarbonization. 

Fossil Fuels as a Complement to Other Energy Sources

It is certainly important to accelerate the implementation of climate change countermeasures that are economically feasible. Many energy-efficient and renewable energy technologies whose costs have been reduced through prior implementation in developed countries will be good investment targets for the Global South. Nuclear energy will also play an essential role in many parts of the world.

However, each of these nonfossil solutions has some limitations. Energy-efficient technologies need to be combined with decarbonized energy supplies to pursue net-zero emissions. Debates over nuclear energy use are continuing, particularly regarding assurances of safety and waste management, and thus make it difficult for nuclear to be the dominant source of global energy supply. Among renewables, the distribution of geothermal and hydroelectric resources is geographically uneven, which makes them deployable in limited areas of the globe. Sustainable biomass use is limited in amount due to the challenges associated with balancing the need for food supplies and forest conservation.

With relatively few technological and political restrictions, wind and solar are the most expected nonfossil energy sources for expansion in a range of countries, as evidenced by the three-fold increase in wind power generation and the fifteen-fold in solar from 2011 to 2021, according to the IEA.

Nevertheless, wind and solar still have considerable constraints. The Asia-Pacific region showcases some of them. As the first map below indicates, dense wind power is rare in the region, unlike Europe and North America. The second map depicts that sunshine is also sparse in the Asia-Pacific due to the wet weather. Moreover, dense populations throughout the region leave less room for land-intensive onshore windmills and solar panels. Also, the multiple island chains in the region make it more challenging to develop a power grid of high coverage and connectivity, which is necessary for connecting vast amounts of variable energy resources like wind and solar and fully utilizing the generated power.

Wind Power Density of the World (W/m2)

Solar Photovoltaic Power Generation Efficiency of the World [kWh/kWp]

Further, there are many coal-fired power plants in the Asia-Pacific region that have not yet depreciated in value, which would make eliminating them costly.

A range of challenges worldwide complicate efforts to introduce nonfossil energy sources more broadly. These include technological and economic hurdles in so-called hard-to-abate industries such as steel, chemicals, and cement; the necessity for flexible resources in electricity systems, such as gas-fired and pumped-storage hydro plants, which can adjust their output to meet real-time electricity demand and complement variable renewables; the security of supply chains including for critical minerals, on which battery and renewable technologies are particularly reliant; and increased costs caused by decreasing availability of competitive sites as the installation of windmills and solar panels progress.

Indeed, a variety of research and development is underway to solve these challenges. Floating offshore windmills and perovskite solar cells may well unleash the potential of wind and solar resources. Large-scale batteries and other energy storage technologies may become the primary sources of flexibility. Nuclear fusion might put an end to the world’s energy problems.

Nevertheless, developing countries in particular could find it difficult to rely on emerging technologies alone to meet energy demand. Thus, there is a need for an affordable alternative as a bridge to the future where innovative technologies like the above will provide the foundation for economic activity. It is crucial to create an environment where developing countries are willing to adopt cleaner technologies without considering them impediments to economic growth. Fossil fuels have a complementary and indispensable role to play in the transition to a decarbonized future.

Courses of Action

There are three courses of action advanced industrialized economies should consider to promote the cleaner use of fossil fuels as a pathway toward the decarbonized world.

The first is to foster research, development, and dissemination of technologies necessary for the cleaner use of fossil fuels. Those technologies include carbon capture, utilization, and storage (CCUS), as well as the generation, transport, storage, and utilization of hydrogen and ammonia, which can be produced from fossil fuels and burn without emitting carbon dioxide, so they have potential to decarbonize fossil fuel use in a broader sense if combined with CCUS in the production process. Improving the applicability and affordability of these technologies should be a top priority.

Since these technologies are still in the process of development, it is important to implement them step by step. For example, encouraging hydrogen or ammonia co-firing is a good starting point for reducing emissions now while fostering the maturation of the technology for more comprehensive use in the future. Similarly, building CCUS-ready equipment (facilities designed to install CCUS in the future) will help secure future emission reductions while meeting near-term energy demand at an affordable price.

As for fostering the development of cleaner technologies and their global deployment, particularly in the developing world, the Asia Zero Emission Community (AZEC) is a good example. This Japan-led initiative, joined by nine Association of Southeast Asian Nations members and Australia, sets forth a common goal to pursue net-zero GHG emissions and ensure energy security while realizing economic growth and resilience in the Asia-Pacific region, while also considering each country’s economic, societal, and geographic circumstances. In its first ministerial meeting in March 2023, the participating countries agreed to cooperate on various clean technologies, including hydrogen, ammonia, CCUS, and renewables.

Second, financial support needs to be provided to encourage the introduction of cleaner technologies and related equipment in developing countries, given that unabated fossil fuel use is cheaper than cleaner alternatives. As the cleaner technologies mature, governments and export credit agencies of advanced economies, multilateral development banks, and other funds should support their implementation proactively.

Finally, investments in fossil fuel supply chains remain vital to providing adequate, affordable, and cleaner fossil fuels to meet future energy demands. While it is reported that the amount of capital expenditure in oil and gas upstream has surpassed pre-Covid-19 levels and the oil and gas industry has an adequate amount of free cash flow, political pressure by governments, investors, and NGOs can make the industry reluctant to keep investing in production and distribution capacities. As fossil fuels continue to be needed for the time being, investors and other stakeholders need to break with the assumption that investing in fossil fuels immediately goes against the environmental, social, and governance perspective.

Net-zero emissions should remain the ultimate goal, but developing nations face economic realities that could prevent a leap to fully decarbonized energy systems. Countries aspiring to lead global climate actions need to be aware and supportive of various pathways that best suit each country and region in pursuing the goal, as was indeed repeatedly emphasized in the G7 Hiroshima Leaders’ Communiqué. Introducing and subsidizing the use of new technology to reduce the environmental impact of fossil fuels is a practical step toward a decarbonized future that would reduce greenhouse gas emissions while promoting economic growth.

Kota Shizawa is a visiting fellow with the Japan Chair at the Center for Strategic and International Studies in Washington, D.C, from Keidanren (Japan Business Federation).