Save for later Print Download Share LinkedIn Twitter The International Energy Agency's (IEA) Net Zero by 2050 road map has rocked the oil and gas industry with the rapid phaseout of hydrocarbons it envisages. It's up to governments to make the energy transition happen, however, with some using the IEA report to accelerate action, and others still moving more slowly. The real impact of the plan may ultimately be in the debate it has sparked, and how this could add to policy and investor momentum for climate action.The pathway set out by the IEA to reach net-zero emissions by 2050 is not prescriptive. But the IEA sees it as the most feasible one. It is designed to "inform policymakers so they understand the implications of their actions -- and of their inaction," according to the agency's Executive Director Fatih Birol. It's perhaps unsurprising then that the road map is resonating differently across the world, with some dismissing it and others seeing it as a useful framework to inform more ambitious targets (EC May21'21).Vice President of the European Commission Frans Timmermans commended the IEA for showing a feasible path to net zero that acknowledges renewables are the future. But even advocates face potential sticking points. Many governments have declared net zero by 2050 targets, but few have mapped out specific steps on how to get there, and there is scope for disagreement en route -- along with hit and miss incentives. Recent renewables tenders in Italy and Germany, for example, failed to entice bidders to fill the capacity on offer. That helps illustrate the point that, while renewables are plunging in cost, a lot of stars involving policy, funding and mindset need to align to get growth at the pace and scale needed for oil demand to shrink to the levels set out in the IEA report. Carbon offsets, which the IEA excluded, could also figure among policy and commercial plans. The report is a message to policymakers to "introduce vast aggressive new policies globally. If those policies don’t come, then oil demand will not drop fast enough and new projects will be needed (and they will be built by someone)," says Martijn Olthof, equities manager at APG Asset Management.Policy, Investor ClarityGreater policy clarity from Brussels should help sharpen energy transition plans being pursued by the European oil majors, which have long signaled that they need the right policy signals to underpin big investments. Officials are putting the finishing touches to a broad-ranging policy overhaul coming in mid-July. Energy Commissioner Kadri Simson said last week that this would put the EU on a pathway consistent with the IEA scenario's 1.5°C goal. The EU has agreed to a 55% cut in average emissions across the 27-member bloc from 1990 levels by 2030 on its way to net zero by midcentury. However, critics say Europe should cut emissions by 65% to remain Paris-compatible.US majors are in a different place. With a goal of 50%-52% emissions reductions by 2030, the Biden administration's overarching targets and spending plans are ambitious, but the US is not yet set on the path. High-level regulations aimed at attaching a price to emissions -- a carbon tax, for example -- haven’t moved forward. Sector-specific policies such as a clean electricity standard are caught up in broad infrastructure and other spending legislation that remains stalled on a politically polarized Capitol Hill.But even if Republicans block policy now or retake the White House in 2024, investor pressure is likely to continue apace, as happened under the administration of former President Donald Trump. US majors Exxon Mobil and Chevron are already starting to feel the heat, and "some investors" might use the IEA report to advocate against new oil projects "especially if the new scenario is used for instance in the future for benchmarking purposes," says Olthof. Neither Chevron nor Exxon have interest in renewable power as a business line, citing a lack of competitive returns and synergies with existing competencies. That leaves the rest of the toolbox -- carbon capture and storage (CCS), hydrogen, synthetic fuels, biogas, biofuels and, as a bridge, offset credits. The companies have begun defining which tools they prefer: CCS for Exxon and a range of biofuels, biogas and CCS for Chevron, with hydrogen a longer-dated interest for both. What's missing is a tangible ramp to make these material businesses sooner than later. Management teams will face intense pressure to deliver such blueprints in the next few months.Scenario PushbackThe IEA report has had a different resonance in coal-reliant Asia, where gas and LNG are viewed as critical to swiftly reducing greenhouse gas emissions. The potential for renewables is also unevenly distributed across the region. "From the perspective of energy resiliency and stability, Asia definitely still needs fossil fuels even in 2050,” Takeshi Soda, director for oil and gas at Japan's trade ministry, said recently.The Indian government so far hasn't announced a net-zero target, with strong voices arguing it is not in the national interest, pointing to India's relatively low per capita emissions and development and growth needs.Chinese energy transition policies were gathering momentum even before the IEA report was issued, and are unlikely to be affected by it. Concrete action plans are already in the works for peaking emissions earlier than 2030, even if nearer term, security-of-supply concerns still support China's crude imports (WEO May7'21). Plans for the transport sector pose the biggest threat to oil demand, with state China National Petroleum Corp. predicting that domestic gasoline consumption will "peak before 2025 at around 160 million tons (3.73 million barrels per day)."Producer nations' reactions to the net-zero road map have ranged from somewhat skeptical in Norway to more hostile in the Mideast Gulf. That is perhaps unsurprising given the existential threat a move away from oil and gas poses to the region, even though such a move could benefit Gulf producers in the short term if Western majors scale back investment. Many PathwaysFor most of Europe's transitioning majors, the IEA net-zero path may exceed their expectations of oil and gas decline, but it does play into their strategies. They are looking to build up renewables capacity, get more involved in electric vehicle charging, low-carbon gases and hydrogen, which will need to expand rapidly, according to the IEA scenario.At the same time, "oil companies will no doubt point at the other scenarios and at the immense challenges that this IEA scenario brings," notes APG's Olthof. But embracing the push for strong policies could bring benefits, he adds: "With the right policies in place, they can then start to invest in alternative energies on a much larger scale, since they will have assurance that demand will be there." Absent supportive policies, investor pressure could act as a lever.Critically, the IEA road map could bring new urgency to negotiations at COP26 this November in Glasgow, where it is hoped countries will raise their climate ambitions and deliver policies to achieve them. The current gap between ambitious rhetoric and actual policy action, the IEA's Birol emphasized, "means that any global pathway to net zero by 2050 has become even more narrow and difficult."Ronan Kavanagh is deputy editor of EI New Energy, based in London. Philippe Roos is a senior reporter at Energy Intelligence based in Strasbourg, France. Emily Meredith is deputy chief of the Washington bureau of Energy Intelligence. Kim Feng Wong is a reporter at Energy Intelligence, based in Singapore. A version of this article originally ran in Energy Compass. It is the first in what will be a series of World Energy Opinion pieces on the implications of the International Energy Agency Net Zero by 2050 roadmap over the coming weeks.