A Blueprint for the Energy Transition

Society has gone through energy transitions in the past—but nothing like this one. The adoption of coal occurred over roughly five decades and the shift from coal to oil took more than three decades. To limit global warming to 1.5°C above preindustrial levels, we must ramp up renewables and other low-carbon solutions at warp speed. These energy sources must match the maximum shares held by coal (55%) and oil (41%) roughly three times faster than those commodities did and ultimately account for most primary energy by 2050—up to 70% in IEA’s Net Zero Emissions scenario. This rapid transition remains a massive challenge and appears increasingly unlikely: current policies would permit warming to +2.7°C by 2100. And the speed of the energy transition in sectors such as industrial manufacturing and buildings is woefully insufficient.

So how do we accelerate progress to ensure that we can meet ambitious targets for 2030 and beyond? BCG has studied the energy transition in depth to build a blueprint that outlines ways to scale new low-carbon technologies, the global implications of the shift, and critical actions that policymakers, energy users, infrastructure providers, energy producers, and investors can take to move the needle. Over the coming months, we will publish a series of articles exploring many of these topics in greater detail.

A Tectonic Shift

Failure to bend the curve dramatically on emissions will have steep costs for the natural world and for the health and livelihoods of people around the globe. Evidence of these impacts becomes clearer every day—and at a concerning pace. We have the tools to get to net zero, but we do not have the policies, proven business cases, and capabilities in place everywhere to massively accelerate the pace of action. All stakeholders, private and public, need to do their part to effectively unlock concrete progress.

The Far-Reaching Implications

The energy transition is critical to preserving a livable planet. It will also drive major economic change—altering the economics of energy systems and markets and remaking the global competitive landscape. But if we successfully accelerate the transition, we can expand access to electricity and greater prosperity to the 775 million people who don’t have either today—and enable the even larger number of people who use very small amounts of electricity today to increase their usage.

Action Across the Energy Ecosystem

Private and public sector leaders seek greater clarity about the concrete actions they can take today to accelerate the energy transition through 2030 and beyond. Our work sheds light on opportunities and imperatives for all players. They must not only push ahead on these specific steps, but also simultaneously craft a vision of a green, resilient economy and private sector that mobilizes the support of their stakeholders.

Policymakers

As the toll of climate change becomes increasingly visible to citizens, public sector leaders need to build public support for action. That action should leverage the full power of market forces while maintaining the ability to course-correct. To achieve this result, they should prioritize actions on six fronts:

Close the Cost Gap

The energy transition will cost consumers in the short to medium term but pay off in the long term.

Many green products and technologies are still more expensive than gray alternatives when externalities are not priced in. (We currently price only 18% of global emissions from a carbon markets perspective.) Policymakers can level the playing field by taking steps to make non-green offerings more expensive (for example, through tax policy, carbon pricing, or removal of subsidies) or by making green products more cost competitive (for example, through incentives or public R&D funding). Recent developments are encouraging—particularly in the US, with its passage of the IRA, and in the EU, with its Green Deal Industrial Plan. The challenge now is to proceed to implementation, designing the appropriate regulations and disbursement mechanisms and alleviating bottlenecks.

Get Granular

Governments must set the stage for predictable, steady progress toward net zero.

Granular year-by-year deployment targets are critical to delivering on ambitious 2030 and 2050 goals. Stakeholders must coordinate these targets across industries and value chains. In some cases, government guarantees can advance efforts to achieve those targets.

Redesign Energy Markets

The energy system needs unprecedented levels of low-carbon investment.

Energy markets must evolve in three primary ways. First, planners must design energy systems and networks holistically and not shy away from configuring supply and demand in more optimal locations, when possible. Second, they must redesign electricity markets to provide the price signals needed to efficiently balance supply and short-term demand, and to incentivize an unprecedented level of investment. To this end, policymakers can enhance today’s market signals—for example, through carbon pricing and guaranteed revenue streams or subsidies. Third, energy markets must encourage energy consumers to modulate the timing of demand, including by shifting consumption toward off-peak hours.

Dramatically Cut Planning and Permitting Times

Large investment is needed, most notably to increase low-carbon energy supply and grid expansion.

In theory we have access to plenty of low-carbon energy. But time-consuming planning and permitting processes can severely impede rapid progress. Policymakers can streamline these processes to power rapid progress, particularly in expanding electric grids. Of course, instituting such procedural innovations entails overcoming major barriers, including potential pushback from public opinion.

Rethink Liability Frameworks

New low-carbon technologies are critical, but funding them carries some risk for investors.

Newer technologies—such as hydrogen and carbon capture, utilization, and storage—raise questions of liability uncertainty. For example, it may be unclear who should pay in the event of CO2 leakage. Potential financial risks of this sort, which can be massive, are slowing or even halting investment decisions. Updating and implementing redesigned liability frameworks can unleash significant investment.

Ensure a Just Energy Transition

The costs and benefits of the transition must be equitably shared.

During the energy transition, some traditional jobs will disappear and many new ones will emerge. Governments must ensure an equitable distribution of the positive and negative impacts of these changes across geographies and society. Ultimately, such equity will be critical to gaining and maintaining popular support for the transition. Advanced economies should also offer technical and financial assistance to emerging economies in support of their efforts to plan and deliver just transitions.

Fuente: Bcg