Net Zero Emissions- Transforming the Economy

Summary

Net Zero Emissions (NZE) of greenhouse gases (GHG) by 2050 is becoming imperative to contain global warming to 1.5 °C. Radical shifts in many sectors will be required to achieve this ambitious task. This will lead to huge opportunities in several areas as well as serious challenges in others. The world economy by mid-century will be totally transformed. But with NZE, it will finally be on a sustainable growth path.

The NZE Challenge

The number of countries that have pledged to reach NZE around mid‐century continues to grow, but so do global GHG emissions. Urgent action by all nations is needed if we are to have a fighting chance of reaching net-zero by 2050 and limiting the rise in global temperatures to 1.5 °C. Some recent studies, e.g. by the International Energy Agency (IEA), map out pathways for reaching this goal. They envisage a transformation of the global economy from one dominated by fossil fuels into one powered predominantly by clean energy sources even as global GDP continues to rise. Whichever pathway is finally adopted, there will be huge growth and investment in some sectors and technologies. Concurrently, others will face a decline and the challenge of reinventing themselves for an NZE world.

Growth Areas and Opportunities

Any NZE pathway will include dramatic shifts as outlined below:

• Renewable energy dominating the energy sector
• A big push for Electric Vehicles (EVs) – using batteries or fuel cells.
• Tapering down investment and production in oil & gas fields and coal mines. And no new coal-based power plants.
• Use of hydrogen, synthetic fuels, and biofuels in aviation, long-distance trucks, and shipping.
• New technologies for reducing carbon emissions in industry e.g. steel, chemicals, and cement.
• Innovations in advanced batteries, hydrogen electrolyzers, and carbon capture.

Several sectors are poised for an upsurge in growth and investment using existing, proven technologies as described below.

• Renewable Energy(RE): Mainly solar, and also wind, RE is set for explosive growth in India. At present, RE accounts for about 10% of India’s electricity generation, and coal close to 70%. From 2020 to 2025, 32GW of coal-based thermal power capacity is expected to be added (mainly from partly completed plants) while RE will contribute 62 GW. In the following five years (2025 to 2030), coal-based capacity addition is likely to dwindle to 1 GW while 118 GW RE capacity is likely to be added. This shift is driven by the extraordinary cost‐competitiveness of RE, which will out‐compete existing coal‐fired power by 2030 even when paired with battery storage. India has set a target of 450 GW of RE by 2030 under the Paris Climate Agreement. A further 600 GW RE capacity is expected to be added by 2040. Going forward, solar power (with storage) will increasingly be the mainstay of the energy sector in an NZE economy attracting enormous investment. Several Indian groups e.g. Adani, Reliance, NTPC, and Tata have already announced major investments in RE.
• Electric Vehicles (EVs): The switch to electric power for road transport is an essential part of any NZE pathway. The shift to battery EVs is already underway. As battery prices continue to drop by around 15% annually, price parity with internal combustion vehicles (ICVs) will be achieved during the next 3 to 5 years for 2 wheelers, 3 wheelers, passenger cars, and light commercial vehicles. Coupled with much lower operating costs, this will lead to an inflection point in the adoption of EVs with penetration by EVs reaching around 40 to 50% by 2030. A phase-out of ICVs for these categories by 2035 is considered necessary to achieve NZE by mid-century. Already, several automakers have announced plans for the accelerated launch of EV models. Jaguar has announced a complete switch to EVs by 2025. Ford Europe intends to have an entirely electric lineup by 2030 and GM by 2035.
• Charging Infrastructure: With a growing population of EVs in the coming decade, the need for charging infrastructure will increase in tandem. As the number of EVs in use reaches several crores beyond 2030, millions of charging points of different types will be required- overnight, high speed,  public, private, multi-apartment building. These chargers will create further demand for clean power which will have to be met by more RE capacity.
• Power Grid: The rise in demand for electricity will bring much greater variability in supply and demand. On the supply side, this reflects the growth in solar and wind. On the demand side, it is related largely to a multi‐fold increase in peak daily electricity consumption for air conditioning and charging of EVs. India’s requirement for power system flexibility will rise fast in the future requiring investment in transforming the power system, including flexible operation of the coal‐fired capacity, robust grids, battery storage, and demand‐side response.
• Gas: It can be used as a substitute fuel for coal, oil, and traditional biomass (e.g. fuelwood, dung, and charcoal). Gas, where it is available, is well suited to the needs of industrial sectors such as textiles, light manufacturing, and food and beverages. This is apart from its use for domestic cooking and transport (CNG). As a substitute for more polluting fuels, allied to improvements in end‐use efficiency, natural gas will have a role in India’s transition to a low‐carbon economy.
• BioFuels: Modern technologies and supply chains can use India’s substantial level of organic feedstock and waste to produce bioenergy that can power vehicles, provide energy for households, generate local heat and power, and help meet the energy needs of a wide variety of industries. The government has set targets for transport biofuels as a means to substitute fossil fuels. India’s new biofuels policy targets bioethanol blending in gasoline of up to 10% in 2022 and 20% in 2025. Efforts are now underway to develop the supply chains necessary to produce biodiesel. India needs to fully exploit its waste crop oils, animal fats, agricultural and forestry residues, and municipal waste. These feedstocks can sustain a more than doubling of modern bioenergy (advanced biofuels, biogas, and biomethane) consumption between 2019 and 2040.

New Technologies critical for NZE

Several clean energy technologies are pivotal for reaching net‐zero emissions but are not yet fully proven. They present opportunities in the coming years:

• Advanced Batteries: Innovations in batteries that reduce costs, increase energy density and substitute rare minerals are required by the next decade. India has the potential of becoming one of the world’s largest markets for batteries- driven by the demand for EVs and energy storage.
• Carbon Capture Utilisation and Storage (CCUS): This will be a critical technology for capturing carbon emissions from processes and industries where there is no substitute for fossil fuels or where CO2 emissions are unavoidable. India’s CO2 storage potential needs to be properly mapped as it could influence the location of future investments. Further, Direct Air Capture (DACCUS) can remove CO2 directly from the atmosphere thereby facilitating NZE.
• Hydrogen and Hydrogen-based fuels: India has the potential to close the cost gap between hydrogen from electrolysis (using RE) and natural gas more quickly than many other countries due to its relatively high gas prices and low-cost RE. However, flexible electrolysis and cost‐effective hydrogen storage will be essential to spur adoption. Fuel cells using hydrogen can facilitate the switching of long-distance road transport (trucks and buses) from fossil fuels to electric. Further, hydrogen can be converted into other hydrogen‐based fuels, mainly ammonia for shipping and electricity generation, synthetic kerosene for aviation, and synthetic methane for blending into gas networks.
• Bioenergy: India has the opportunity to build on its existing strengths in biotechnologies and develop advanced biofuels that can substitute diesel and kerosene in long-distance transport- e.g. heavy trucks, aircraft, and ships. There is also potential for developing low‐cost biomethane to meet a major part of gas demand in India by mid-century.
• Emissions from Heavy Industry: Three heavy industries – chemicals, steel, and cement – account for nearly 60% of all
  industrial energy consumption and around 70% of CO2 emissions from the industrial sector. Hydrogen and CCUS technologies together are likely to contribute around 50% of the emissions reductions in heavy industry. These technologies enable the provision of large amounts of high‐temperature heat, which in many cases cannot be easily provided by electricity with current technologies, and help to reduce emissions from the chemical reactions inherent in some industrial processes (e.g. reduction of iron ore into pig iron).

Challenges for Fossil Fuels

Any NZE pathway will drastically curtail the use of fossil fuels across end sectors. Some of the challenges for incumbents and possible avenues for reinvention are outlined below.

• Oil and Gas: A major contraction of oil and gas production is inevitable with far‐reaching implications for all the companies in this field. This represents a clear threat to company earnings, but there are also opportunities. Some oil and gas companies may choose to become “energy companies” focused on low emissions technologies and fuels, including RE, electricity distribution, EV charging, and batteries. Several technologies that are critical to NZE achievement, such as CCUS, hydrogen, bioenergy, and offshore wind, look especially well‐suited to some of the existing skills, competencies, and resources of oil and gas companies. Global oil majors like Shell, BP, and Total have committed to NZE by 2050 across their own operations as well as from their products. They intend to progressively cut back oil production and step up investment in RE, biofuels, hydrogen, EV charging, and CCUS. In India, GAIL plans to invest in ethanol and solar power. It will also produce compressed biogas for its city gas network.
• Coal: A precipitous decline in coal use is projected in any NZE pathway- with most of the residual coal consumption being in facilities equipped with CCUS. This would have major implications for the future of mining companies and countries with large existing coal production capacities. Retraining and regional revitalization programs would be essential to reduce the social impact of job losses at the local level and to enable workers and communities to find alternative livelihoods. However, the contraction in coal demand could be offset by the need to increase the mining of other raw minerals, including those vital to many clean energy technologies, such as copper, lithium, cobalt, and nickel. By the 2040s, the global market size for these minerals will approach that for coal today. The major global mining companies e.g. Vale, BHP, Rio Tinto, Anglo American, and Glencore are already moving in this direction.

Towards A transformed world

Achieving NZE by mid-century is a daunting task. It will require the agreement and concerted effort of all stakeholders- Governments, consumers, employees, investors, industry, and researchers across the world. It will lead to huge growth in demand, investment, and employment in some sectors. And sharp declines and difficult shifts in others. Also, there will be a spurt in new technologies and innovation. The global economy will be completely transformed. But, with NZE, it will finally be on a sustainable growth path.