Decarbonization – net zero or bust?

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Achieving the goal of the Paris climate agreement means the global economy needs to have net zero carbon emissions by around mid-century. That means a radical transformation of our food, energy and transport systems. What are our chances of getting there?

Climate change was hard to miss in 2019. Alongside the global climate strike and the United Nations Climate Action Summit in September, there was a swathe of commitments by countries and companies to a net zero carbon pathway. The UK, France and Sweden are now among the countries that have set themselves this objective. Meanwhile, big corporate names like, Daimler and Duke Energy — one of the largest electricity companies in the U.S. — trumpeted their own net zero carbon commitments.

What does net zero mean? Simply put, stabilizing global average temperatures at any level means net manmade greenhouse gas emissions have to come down to zero, with any emissions offset by removing carbon. The earlier that happens, the lower the ultimate rise in temperatures. According to the scientists at the Intergovernmental Panel on Climate Change, getting to net zero by 2070 should limit the rise to 2 degrees Celsius, but for the more ambitious 1.5 degree target, the world would need to be carbon-neutral by 2050. Busting the carbon budget will mean higher and sharper temperature rises, and more extreme physical impacts on people and the planet.

Renewable additions must accelerate to meet targets

Annual renewable growth required to meet net zero emissions (Gw)

Source: UBSe as at September 2019

The pathway to net zero is perhaps easiest to see in the electricity generation sector. Alternatives to coal and gas generation exist, and while in the past they relied on subsidies, the cost reductions in renewable technologies have been so dramatic that they are often the most economical option even with no subsidy at all. The UK’s latest offshore wind auction saw some prices drop under the £40/MWh (megawatt hour) level — less than half the price that has been promised for energy from the country’s latest new nuclear plant.

Renewable energy already makes up almost three-quarters of net new electricity capacity globally every year, but that investment will have to scale up again to fully decarbonize the sector. Around 200GW (gigawatt) is currently being installed annually, but that’s likely to need to rise to 500-600GW to get to net zero by 2050. Intermittency also has to be tackled, through some combination of using diverse sources of renewables, energy storage, and zero-carbon baseload power like nuclear energy.

Solving the electricity part of the carbon equation looks possible, then. But electricity counts for only around a quarter of global greenhouse gas emissions, and decarbonizing other activities looks considerably trickier. Transportation is at a much earlier stage of the journey. Electric vehicles (EVs) make up well under one percent of the car passenger fleet, and there remains a lot to be done on affordability and installing charging infrastructure — some of which is going to require public sector investment. Mass uptake of EVs will also put extra pressure on the electricity sector, upping the need for even more zero carbon sources.

Our reliance on natural gas for heating and cooking will also need to change, and while there are plenty of solutions around, retrofitting these to the existing housing stock is a daunting task. Some headway is being made on emissions from the production of materials such as steel, with ArcelorMittal confident enough that solutions will be found that they have committed to being carbon neutral by 2050 for their European business. Perhaps the hardest challenges are in food production — making up only 15% of global emissions, but with limited solutions in sight. The shift to nonmeat proteins would need to accelerate markedly to make a dent.

The Global Investment Forum, London, 2019

Our Global Investment Forum addresses some of the key thematic medium term drivers of economies and markets from here.

What about taking carbon out of the atmosphere, or so-called “negative emissions?” Pretty much every analysis of how we get to a net zero carbon world assumes some form of carbon capture and storage. Again, the problem is scale. A mass afforestation program would make a big impact, but with a growing global population to feed, land use pressures will put limits on this approach.

A range of technological solutions are also being developed, some more tried and tested than others. Systems that would strip carbon dioxide from coal or gas plants and bury it have been shown to work in pilot schemes, though they face challenges with cost and public acceptability.

The pace of change in the past decade, and even the past couple of years, has been huge, with some bold corporate and government commitments helping to provide the confidence to invest in innovations. Will the world reach net zero or will we bust the budget? Either way, there are big changes ahead to our energy systems and lifestyles.

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