The Fuzzy Math Behind Carbon Emission Projections

Topics: Energy, Natural Resources

Valuations for nearly any stock tied to renewable energy themes became quite stretched in 2020, and reports from reputable agencies predicting an acceleration in renewable adoption have only added to the momentum. There’s only one problem: The math behind many of these reports is, at best, fuzzy.

In our Q4 2020 commentary letter, we provided a quick, digestible overview of why some of the math behind those estimates isn’t feasible. We also, provide our own recommendations for what an energy plan that reduces carbon emissions will require.


Additionally, in our letter, we shared there are a few problems with the projections from the International Energy Agency’s (IEA) World Energy Outlook, which we believe predicted an acceleration of renewable adoption that is likely impractical. As we explain:

“The IEA’s World Energy Outlook generated a lot of attention when it was released. Upon closer inspection, we believe the report makes two critical mistakes. While [the report projects] CO2 emissions fall to 15 bn tonnes by 2040, the drivers of the reduction seem questionable. For emissions to fall 60% over the next twenty years, the IEA assumes per capita energy demand will fall by 25% while CO2 per unit of energy drops by 50%, offset by population growth of 20%. Together, these factors equate to a 60% reduction in total carbon emissions and keep atmospheric CO2 to within 450 ppm. Unfortunately, neither energy intensity nor carbon intensity are likely to fall anywhere near the amount predicted by the IEA.


"Few people are aware that most climate proposals are based on consuming 25% less energy. According to the BP statistical review, there has not been a single 20-year period since their data begins in 1965 where per capita demand has fallen by more than 0.1%, making this assumption untenable.


“We have spent years studying energy trends in emerging markets. Over that time, non-OECD countries have gone from consuming 40% of all primary energy to 60%. As an emerging market gets richer, it reaches a tipping point and starts to consume more energy. Once an economy is developed, it reaches a saturation point and energy demand moderates. Since 2000, non-OECD countries have grown their primary energy demand per capita by 65% compared with a reduction of 10% in the OECD world. Even following two decades of strong growth, non-OECD demand is still 70% below OECD levels suggesting more growth is yet to come. Non-OECD real GDP per capita is expected to double over the next 20 years, suggesting these trends will continue. Instead, the IEA projects emerging market per capita energy demand will fall by 20%. Simply put, this is impossible. Over the last two decades, real GDP doubled, and energy demand rose 60%. Even if this relationship is cut in half, the next doubling on GDP would result in energy demand growing by 30% by 2040, not falling by 20% …


“Unfortunately, carbon intensity per unit of energy consumed is unlikely to fall by the 50% assumed in the IEA’s proposal either. It is widely believed the reduction will be based upon the widespread adoption of wind, solar, electric vehicles, and hydrogen fuel cells, but our research suggests these technologies will fail to deliver the expected results. There are several real-world examples that confirm our suspicions. Over the past two decades, Germany has aggressively pursued its renewable-centric “Energiewende” plan, taking renewables from 2% of all German electricity to nearly 40%—by far the most aggressive renewable push in the world. Over the same period, carbon emissions per unit of energy fell by only 12%. Not only is this reduction a far cry from the projected 50% reduction in most energy transition plans, but it is also no better than those countries that did not adopt a renewable energy push. Between 2000 and 2019, the US and France went from 1% renewable electricity to 10%, or less than one-third of Germany’s penetration. Despite this lack of renewable adoption, US carbon intensity fell by 13% while France’s intensity fell by 10%, ahead of and only slightly behind Germany, respectively.”

For more on our dissection of the IEA projection, or our own thinking on what a feasible carbon emission reduction plan must entail, we encourage you to read our Q4 2020 commentary, available below. 

Q4 2020 Research: Ignoring Energy Transition Realities