What is Decarbonization?
Decarbonisation is the term used for removal or reduction of carbon dioxide (CO2) output into the atmosphere. Decarbonisation is achieved by switching to usage of low carbon energy sources.
‘Decarbonisation’ tends to refer to the process of reducing ‘carbon intensity’, lowering the amount of greenhouse gas emissions produced by the burning of fossil fuels.
Particularly in energy-intensive sectors such as mobility or energy and heat generation, it is essential to cut down on or avoid greenhouse gas emissions such as carbon dioxide (CO₂) so as to stem the advance of climate change.
Generally, this involves decreasing CO2 output per unit of electricity generated. Reducing the amount of carbon dioxide occurring as a result of transport and power generation is essential to meet global temperature standards set by the Paris Agreement and UK government.
Since the Paris Climate Agreement in 2015 if not before, numerous states and companies worldwide have committed themselves to decarbonisation.
They have to take short- and long-term sustainability measures to minimise greenhouse gas emissions considerably by 2030 and to become climate neutral by 2040 or 2050 at the latest.
Where do emissions come from?
Understanding the sources of carbon emissions is crucial for effective decarbonisation. In 2022, global CO2 emissions originated from various sectors:
- Energy use in industry (24.2%): Industries consume large amounts of energy, primarily from fossil fuels, for manufacturing and production processes, leading to significant CO2 emissions.
- Transport (16.2%): The transport sector relies heavily on gasoline and diesel, emitting substantial CO2 through vehicle exhausts.
- Energy use in buildings (17.5%): Residential and commercial buildings use energy for heating, cooling, and electricity, contributing to emissions.
- Fuel combustion (7.8%): Direct burning of fossil fuels for energy in various applications, including power plants and residential heating.
- Fugitive emissions from energy production (5.8%): Leaks and other unintended emissions during the extraction, processing, and transportation of fossil fuels.
- Energy use in agriculture (1.7%): Agricultural practices, including the use of machinery and irrigation systems, consume energy and emit CO2.
- Direct industrial processes (5.2%): Emissions from chemical reactions in industrial processes, such as cement and steel production.
- Waste (3.2%): Decomposition of organic waste in landfills produces CO2 and methane.
- Agriculture, forestry, and land use (18.4%): Deforestation, land-use changes, and agricultural activities release CO2 stored in plants and soil.
How Does Decarbonisation Work?
Decarbonisation involves increasing the prominence of low-carbon power generation, and a corresponding reduction in the use of fossil fuels.
This involves in particular a use of renewable energy sources like wind power, solar power, and biomass.
The use of carbon power can also be reduced through large-scale use of electric vehicles alongside ‘cleaner’ technologies.
Decreasing carbon intensity in the power and transport sectors will allow for net zero emission targets to be met sooner and in line with government standards.
When Does Decarbonisation Occur?
Efforts made to decarbonise have been put in place by various countries, with more than 150 governments having submitted plans to reduce carbon emissions by 2030.
Changes made include Paris’ pledge to ban diesel vehicles from 2040, and TfL schemes to introduce electric and electric hybrid London buses and black cabs.
Renewable energy sources are also being implemented more widely, and now produce a third of all power capacity worldwide.
Greenhouse gas emissions from fossil fuel power stations can be capped by installing carbon capture and storage (CCS) technology, with around 20 large-scale CCS facilities currently in operation globally and more under construction.
Why is Decarbonisation Important?
Through the burning of fossil energy sources, greenhouse gases are emitted into the atmosphere, strengthening the greenhouse effect.
This is a key driver behind global warming and, consequently, climate change: should the average global temperature increase by more than the targeted 1.5°C in comparison with pre-industrial times, the world’s climate would change irreversibly, which would have devastating consequences.
In response to the ambition of the 2015 Paris Agreement, many governments and business leaders have set targets and made commitments to reduce carbon emissions.
Decarbonisation has become a global imperative and a priority for governments, companies and society at large, because it plays a very important role in limiting global warming.
Many companies across all industries (e.g., in energy, transport, consumer products) have publicly declared their intention to become carbon neutral by 2050.
While progress is being made at global, national, sector and local levels, recent estimates suggest we are not on track to meet the Paris targets, and more must be done.
What is needed for the transition?
How can executives drive industries and organizations to reverse course and lead to a low carbon future?
As said, a growing array of businesses and governments are, confronting climate change, announcing emissions goals and climate initiatives daily. While worthy in and of themselves, these efforts are often focused narrowly on the organization’s own operations.
What’s needed is a more holistic system of systems approach that unlocks critical opportunities in the transition to a low-carbon economy by working at the intersection of emerging low-carbon initiatives.
Adopting systems thinking can help with a successful transition to a low-carbon future. Governments, consumers, businesses and industry all have to take their responsibility and re-enforce each other to build a better future.
How to accelerate decarbonisation in specific industries?
Based on insights from the Tracker’s inaugural report, here are five recommendations for stakeholders of the five industries that produce the most industrial emissions:
1. Define “low-emission” production thresholds to direct decarbonization trajectories
Net zero targets are necessary to set long-term ambitions, but they are insufficient to drive year-over-year progress.
For basic materials as well as oil and gas, international sustainability standards need to establish emission intensity thresholds that anchor what “low-emission” production in a net zero world looks like.
These thresholds should be technology agnostic and account for varying product specifications, such as clinker ratio in cement or scrap content in aluminium or steel.
Industry standards such as the Aluminium Stewardship Initiative or Responsible Steel alongside multi-stakeholder collaboration will be essential to define thresholds within each sector.
At present, across all five industries, the gap to meet the 2050 emission thresholds outlined in the IEA Net Zero by 2050 Scenario is considerable.
2. Set a public-private investment agenda to decrease the cost of clean technology
Many low-emission production technologies have been demonstrated at scale and can drastically reduce emissions, for example -80% for natural gas, -95% for cement plus steel and -100% for ammonia.
However, these technologies are much costlier than traditional alternatives. At the current pace of development, low-carbon technologies won’t be commercially ready, let alone competitive, before the second half of the decade, which would mean 2025 for steel, and after 2030 for cement and aluminium.
Moving forward, economies of scale, efficiency gains and further innovations are likely to drive costs down.
But this can only happen if more full-scale projects are developed. Public and private sectors should come together to rapidly multiply such projects around the globe.
3. Promote low-carbon demand and establish transparency and visibility among producers
Decarbonising industries has estimated capital requirement of over 2 trillion USD in capital expenditure by 2050.
Such investments can only materialise if demand and green premiums for low-emission products exist to grant producers and investors the returns they require. As of now, the willingness and ability of consumers to pay premiums have not been demonstrated.
It is critical for industry stakeholders to strengthen and scale-up demand signals for low-emission products.
Public and private buyers’ commitments are essential to provide visibility on green products’ offtake volume and price (for example the First Movers Coalition and Clean Energy Ministerial IDDI). Carbon footprint product labelling standards can also help differentiate materials and incentivise consumers to pay premiums.
4. Strengthen net zero policies and regulations to level the playing field for low-carbon producers
Maintaining global competitiveness is a top priority for industry leaders and governments. First movers investing in higher-cost, low-emission production facilities assume a higher risk of seeing their competitive positions deteriorate.
Stable and ambitious policy frameworks are necessary to level the playing field and incentivise firms to venture into low-carbon markets while governments need to facilitate the emergence of economically viable ones.
Carbon pricing combined with a border-adjustment mechanism is one potential approach that limits the risk of carbon leakage. Others include carbon contracts, preferential public procurement, material mandates or quotas.
5. Develop risk-sharing mechanisms, green taxonomies, and public funding to de-risk investments and attract capital
Mark Carney, former governor of the Bank of England and UN Special Envoy on Climate Action and Finance, declared at Davos this year:
“We need an energy transformation on the scale of the industrial revolution at the speed of the digital transformation. And therefore, we need a revolution in finance.”
The need for capital to decarbonise industries is immense. For instance, the additional capital expenditure required is equivalent to recapitalising 40% of the steel industry.
To reduce companies’ risk exposure and accelerate capital inflow, innovative risk-sharing and financing mechanisms will be critical.
Multilateral public-private partnerships, joint-ventures across industries and value chains, sustainable finance taxonomies, and public funding in the form of grants, low-interest and concessional loans and so on are a must to attract capital for the first commercial-scale assets.