Climate change and investment considerations

https://iea.blob.core.windows.net/assets/4ed140c1-c3f3-4fd9-acae-789a4e14a23c/WorldEnergyOutlook2021.pdf

Clean energy

Building out clean energy infrastructure will require a dramatic ramp-up in investments. In the second half of this decade, the average annual investment in clean energy needed is estimated at $4T/year against the historical $1T/year, while overall we are looking at $60 trillion invested in generation and infrastructure over the next thirty years.

https://www.mckinsey.com/business-functions/sustainability/our-insights/innovating-to-net-zero-an-executives-guide-to-climate-technology
  • 2x electricity. The NZE energy system relies much more on electricity. The share of electricity in final consumption grows from 20% today to 49% by 2050.
  • 2-way. Some electricity will be generated by businesses, households, and independently distributed energy generators. It should be available for use elsewhere. That leads to a much more complex system with new operational challenges.
  • Long-distance. Renewable generation is often located far from the consumers, while solar and wind are highly dependent on weather conditions. This is where long-distance connections come to place transferring energy from places of abundance to the areas of need.
  • Smart. As electricity generation becomes lumpier, more dynamic demand response will be needed, changing the energy consumption in response to changes in supply. On the grid level, a more robust electricity trading system will be needed to dynamically adjust prices and respond to supply/demand changes in the most efficient way.
  • Improving efficiency. All the changes above should happen in parallel with the ongoing work on improving grid efficiency.

Labor intensity

Despite the lowest LCOE of solar and wind electricity, the labor intensity of these approaches is significantly higher. Especially, for solar where it is an order of magnitude higher than coal or natural gas. Providing 170 EJ (160,000 trillion BTU) of electricity projected in 2050 by IEA in the NZE scenario from solar only would have required 40 million jobs. Since solar is responsible for a third of that energy, the actual requirement is about half that number.

https://www.lazard.com/perspective/levelized-cost-of-energy-levelized-cost-of-storage-and-levelized-cost-of-hydrogen/
https://www.nap.edu/download/25968

Nuclear

The nuclear generation in the NZE world is projected to double from the current 415 GW to 812 GW by 2050 and provide 8% of the total electricity [1].

https://www.energy.gov/ne/articles/nuclear-power-most-reliable-energy-source-and-its-not-even-close
https://ourworldindata.org/safest-sources-of-energy
https://eprints.whiterose.ac.uk/178754/1/EP_2018_JEPO-D-17-02472_ZKis_NPandya_RKoppelaar_ManuScript.pdf

Geothermal

Geothermal energy is currently expected to play a minor role, limited by existing technologies. IEA sets its contribution to electricity generation at around 1% by 2050 [1]. However, there is ongoing work to apply extraction innovations from the oil/gas industry (horizontal drilling, fracking) and new materials to expand geothermal potential.

Energy to generate energy

Building renewable generation requires a lot of energy. According to one set of projections, we will have to go from 40 EJ/year investment into generation to a peak of 160 EJ. It is 120 EJ of additional energy we will have to invest to meet our goals of transitioning to NZE electricity.

https://www.sciencedirect.com/science/article/pii/S2211467X19300926

Transport

Passenger and commercial vehicles. We will need to replace about 2 billion ICE vehicles currently on the roads. The electric transport will require production of about 10 TWh of batteries annually, up 50 times from the current 0.2TWh. Even accounting for declining prices it is a $500B market.

Industry

The industry is responsible for a third of all GHG emissions. While some of the industrial emissions can be straightforwardly removed by using fossil-free electricity, the major challenge is dealing with the process-based emissions — red and orange bars on the chart below. These emissions are a direct result of the chemical process used to create end products. Take cement. The majority of its emissions are process-related. To remove these emissions, the process should be completely reinvented or the end material should be replaced by a clean substitute.

https://energyinnovation.org/wp-content/uploads/2020/04/Technologies-and-policies-to-decarbonize-global-industry-review-and-assessment-of-mitigation-drivers-through-2070.pdf

Agriculture

Unlike electricity generation, most of the agriculture-related emissions come in the form of methane (CH4) and nitrous oxide (N2O). Cattle belching (CH4) and the addition of natural or synthetic fertilizers and wastes to soils (N2O) represent the largest sources, making up 65 percent of agricultural emissions globally. Smaller sources include manure management, rice cultivation, field burning of crop residues, and fuel use on farms [12].

https://interactive.carbonbrief.org/what-is-the-climate-impact-of-eating-meat-and-dairy/ and https://ourworldindata.org/less-meat-or-sustainable-meat
https://www.mckinsey.com/~/media/mckinsey/industries/agriculture/our%20insights/reducing%20agriculture%20emissions%20through%20improved%20farming%20practices/agriculture-and-climate-change.pdf

GHG capture

It seems a bit unnatural to first emit the GHGs and then turn around and spend energy to capture them. And it definitely is. Unlike photosynthesis, where carbon is captured by plants and transformed into temporary energy storage, pure capturing and storing of GHGs is a net waste of energy.

https://iea.blob.core.windows.net/assets/181b48b4-323f-454d-96fb-0bb1889d96a9/CCUS_in_clean_energy_transitions.pdf#page66

Residential transition

NZE transition will need households to install hundreds of millions of rooftop photovoltaic solar systems [14] and heat pumps [15]. Cooking will also need to become clean, based mostly on electricity or green fuels.

  • Solution providers — companies providing an end-to-end solution for the homeowner. They deal with defining the scope of the installation, permissioning, customer service, warranty, as well as coordination of the subcontractors.
  • Financing/Insurance — since some of the solutions require significant upfront investments (tens of thousands of USD), affordable financing becomes an important piece of the equation. Insurance, on the other hand, helps cover the costs in case of accidents.
  • Installation/maintenance — often performed by independent subcontractors to increase geographical reach and accelerate expansion.

Materials

Clean electricity generation and transportation require a lot more materials. Some calculations show that silver, tin, and a few other materials are required in quantities that are significantly higher than estimated reserves.

https://www.mckinsey.com/industries/metals-and-mining/our-insights/the-raw-materials-challenge-how-the-metals-and-mining-sector-will-be-at-the-core-of-enabling-the-energy-transition
https://www.mckinsey.com/industries/metals-and-mining/our-insights/the-raw-materials-challenge-how-the-metals-and-mining-sector-will-be-at-the-core-of-enabling-the-energy-transition
https://reader.elsevier.com/reader/sd/pii/S2211467X19300926

Carbon pricing

Carbon pricing can be implemented in several ways, like a carbon tax, emission trading system (ETS), or crediting mechanism. While these tools work differently, the outcomes are similar — higher incentives to switch to clean technologies, additional revenues for the government, and higher prices for the consumers. Governments can then turn around and return the money to citizens (the ones most in need or everyone) and/or use the funds to invest in R&D, infrastructure, and other initiatives that will accelerate the green transition.

https://openknowledge.worldbank.org/bitstream/handle/10986/35620/9781464817281.pdf

Energy efficiency

Efficiency gains needed for the NZE transition are much higher than historical. The energy intensity of the global economy (energy used per unit of GDP) has to decrease by more than 4% per year between 2020 and 2030 — more than double the average rate of the previous decade [1].

Consumerism

While some of the NZE technologies are more efficient than the ones currently in use, overall the clean way of living is right now more expensive, and likely will stay this way for at least a decade.

Global economy growth

Affordable energy is one the most important pillars of the modern economy’s growth. When energy gets more expensive, it creates a headwind for economic expansion.

Climate change

Finally, the climate change effects should also be considered.

Sources

[1] https://iea.blob.core.windows.net/assets/4ed140c1-c3f3-4fd9-acae-789a4e14a23c/WorldEnergyOutlook2021.pdf

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