There is some good news in the race to net zero. Lower-carbon fuels are gaining traction and the capacity of renewables is growing rapidly. But overall, progress towards targets is still slow, particularly when it comes to gains in energy intensity. Our Research analysts outline five areas where policymakers, companies, investors and consumers can start to step up the pace.
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In May 2019, our Research analysts published an Impact Series Report assessing the global effort to negate completely the amount of greenhouse gases produced by human activity, under the Paris Agreement of 2015. They came up with three basic scenarios and found that in the first, called “Dynamism,” the world would take the radical steps necessary to achieve net zero, or carbon neutrality, by 2050. In the second (“Development”), the world would fall some way short and in the third (“Deadlock”), a long way short.
So how is the world tracking today? The bad news is that progress is closer to Deadlock than Dynamism. Attempts to decarbonise have been sporadic and thwarted, at times, by a lack of political will. Policymakers have found it hard to prioritise a much cleaner energy mix at a time of heightened geopolitical unrest. Economies around the world are grappling with the challenge of ensuring that energy supplies are reliable and affordable, as well as environmentally friendly.
In order to hit targets, greater efforts are needed. Our analysts pinpoint five areas, in particular.
1. Reduce consumption, eliminate waste
The first, and perhaps most cost-effective, is a substantial reduction in energy intensity, defined as energy used per unit of economic output. The last decade has seen only small improvements on that front – and progress appears to have stalled completely a few years ago. Bringing those numbers down is a straightforward task, in theory: avoiding consumption and eliminating waste, and recycling where possible. But much more needs to be done to move to a lower-carbon pathway. Our analysts’ estimates of CO2 saved through those methods range from about 30Gt a year in their Dynamism scenario – or about four-fifths of total energy-related emissions in 2022 – to just 5Gt in Deadlock.
The world is likely to remain dependent on oil for decades but is there a balance to be struck between the demand for oil and the urgent need to contain global warming?
2. Clean up electricity generation
The second of the five areas is cleaner electricity. In both the Dynamism and Development scenarios, our analysts envisage a much bigger role in the global energy mix for electricity, which is zero-emission at the point of consumption.
However, utilities need to rely a lot less on fossil fuels to produce that power. At the moment, coal and gas are the main sources of generation, with wind and solar at just 9% globally.1 Capacity in both areas needs to grow at 8-10% a year for about 30 years.2 That’s an extraordinarily high rate of growth, especially when considering the natural degradation of the installed base. But it is not impossible.
Our analysts believe nuclear energy needs to be a bigger part of the mix, too. It generates no direct emissions at all and has very low indirect emissions, after accounting for the mining for fuel and the construction of plants. Our analysts argue that it could, and should, form the baseload generation necessary to enable the safe, reliable and affordable decarbonised grid that ESG-focused investors are pushing for. In all their scenarios, it accounts for a larger share of the total.
3. Substitute with hydrogen
The third decarbonisation area is hydrogen, which is emerging as a solution both to provide energy storage to support electrification and in its ability to be burnt directly in areas that are hard to electrify, such as heating, long-haul transport and steel and cement production. Our analysts estimate that, with enough support from governments and from industry (the Development scenario), the market could save up to 15% of current energy-related CO2 emissions by 2050.
4. Biofuels without compromise
Arguments for greater use of bioenergy, our fourth pillar, have focused in the past on crop-based biofuels, which have stirred plenty of debate over land use and the potential effect on food prices. Our analysts now see a more prominent role for bioliquids, which can be manufactured from waste raw materials and, crucially, are less disruptive to agricultural supply chains. Such sources make up close to 5% of transportation fuel demand today and we expect that could grow up to 20% by 2050, led by the aviation and trucking sectors. Biomethane – derived from organic matter – has a promising future, too, accounting for just over 5% of the total energy mix in their Dynamism scenario.
5. Locking up carbon
The final area is carbon capture and storage. Efforts to cut emissions through the previous four areas of focus are unlikely to be enough. Even after a radical redesign of the world’s energy mix, up to 17Gt of carbon removal will be needed every year to hit net zero, on our analysts’ estimates. Harnessing so-called "nature-based solutions" is likely to be an essential part of that puzzle: stopping deforestation, improving soil management, protecting natural carbon sinks and restoring damaged habitats. Better carbon-capture technology needs to be applied to power plants, too. Novel approaches include feeding captured CO2 to algae, which can then be harvested for biofuel, or pumping CO2 into agricultural facilities to enhance crop yields.
The bottom line is that net zero by 2050 is not a fantasy. But it can only be achieved by collective, determined action, accelerated by focusing on key areas of greatest impact.
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About the analysts
Senior Research Analyst, Barclays
Lydia Rainforth is a senior research analyst at Barclays, responsible for coverage of European Integrated Energy companies. Key areas of focus include energy transition and how the oil and gas industry adapts to providing clean, reliable and affordable energy in an increasingly capital constrained world. The team has delivered industry-leading work across the opportunities in decarbonisation and is working to develop the modelling of low carbon finance further. Lydia holds the CFA certificate in ESG investing, is a CFA charterholder and graduated with an MA from the University of Cambridge.
Global Head of ESG Research
Maggie O'Neal is a Managing Director and Global Head of ESG Research. Maggie ranked as the #1 analyst in HY Basic Materials, #1 in HY Manufacturing/General Industrials and #2 in IG Manufacturing/General Industrials in the 2022 Fixed Income II survey. She co-developed Barclays' approach to ESG Research and assumed her current role in 2022. Maggie joined Barclays in 2015; she has 15 years of experience in research, having previously worked at Deutsche Bank. Maggie studied at UCLA, Sciences Po Paris and King's College London for undergraduate and holds an MSc from London School of Economics.
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