Infrastructure dilemmas in high-emitting sectors: Perspectives on transportation, energy, and industry

TL;DR

• Transportation currently accounts for roughly 20% of global GHGs; power sector emissions increased by 1.3% in the latest year; and the industrial sector accounts for roughly ¼ of global energy-related CO2 emissions. 

• Across each of these sectors, infrastructure stands as a key component of the puzzle that’s required to reach net zero. 

• There are many opportunities to use existing fossil fuel infrastructure, such as natural gas-fired power plants and pipeline networks, to scale up a new flow of low-carbon solutions. 

• Solutions such as carbon capture, utilisation, and storage (CCUS) technologies can also be used make a huge difference, particularly in hard to abate sectors. 

• Some sectors present greater challenges than others. For battery-electric and hydrogen-powered vehicles to become the norm, trillions of dollars will need to be invested. 

• For hard to abate industries, $13.5 trillion will need to be invested into renewables, clean hydrogen and CCUS infrastructure globally to make net zero an attainable reality. 

• To make progress quickly, governments and industries alike should align to prioritise investment in logical areas.

The detail

The road to net zero is complex. 

There is no one, simple path to be trodden towards mitigating the looming threat of climate change. Indeed, greenhouse gas emissions (GHGs) come from a variety of sources, countries and sectors. 

According to the International Energy Agency (IEA) latest available data, fossil fuels continue to represent 80% of the total energy supply, with oil accounting for nearly 30%, coal 27%, and natural gas 24%. In terms of emissions, coal is responsible for 44%, followed by oil (32%) and natural gas (22%). 

Looking through a geographic lens, the five countries contributing the most to the output of GHGs are China (33%), the United States (13%), India (7%), Russia (5%), and Japan (3%). Staggeringly, these nations are responsible for more than 60% of worldwide emissions. 

As well fuel-types and countries, however, it’s also useful to look at GHG output by sector.  

Having recently taken a deep dive into the bottlenecks to faster renewables deployment, today I’ll be expanding on this, shining a spotlight on the challenges and opportunities associated with the highest emitting industries as the world strives to reduce emissions by 45% come 2030, a key milestone on the road to net zero by 2050. 

#1 – Transportation 

First, let’s take a look at transportation. At present, mobility accounts for roughly one fifth of global GHGs, driven by a combination of cars, trucks, ships, trains and planes reliant on fossil fuels.  

Between 1990 and 2022, transport emissions expanded at an annual rate of 1.7%, a growth rate rivalled only by the industrial sector.  

Interestingly, passenger cars are the largest contributor to emissions in the transport sector, accounting for 39%. These are followed by medium and heavy trucks at 23%, with aviation responsible for less than 10% despite perceptions of air travel as the major transport emitter.  

Perhaps the most significant issue regarding road transportation is the fact that almost four in five vehicles run on internal combustion engines – a challenge which must be addressed with pressing urgency.  

I recently criticised Rishi Sunak’s decision to push back the deadline for selling new petrol and diesel cars from 2030 to 2035. Critically, these statistics again highlight the urgent need for policy changes, incentives, and infrastructure development to instead push transportation in the other direction – towards a more sustainable future.  

#2 – Energy 

Alongside transportation, power is a critical component in the net zero puzzle which must be addressed.  

Promisingly, the world’s electricity production has reached record levels of cleanliness, with carbon intensity dropping to a record low of 436 gCO2/kWh thanks to continued renewables growth. Indeed, wind and solar capacity have continued to ramp up, accounting for 12% of global electricity in 2022 – up from 10% in 2021. In fact, all clean energy sources (including nuclear) now account for 39% of global electricity supply – a new high.  

It’s progress, yes. But with a 61% gap remaining, there is plenty of room for improvement. Additionally, it must be noted that we saw power sector emissions increase by 1.3% in the latest year – a new all-time high. And coal generation also went up by 1.1%, with the number of coal plant closures reaching a seven-year low.  

Global events such as the Russian invasion of Ukraine and rising fossil prices, combined with growing noise surrounding net zero, have pushed governments into reconsidering the energy mix as a priority. In the UK, policy changes have been disappointing – globally, it is imperative that clean power capacity grows quickly.  

#3 – Industry 

Third, and often considered to be the greatest GHG culprit in many individuals’ eyes, is industry. 

According to the IEA, the industrial sector accounts for roughly a quarter of global energy-related CO2 emissions, totalling nine gigatonnes (Gt). From steel and cement to glass and chemicals, several sectors are renowned for their heavy reliance on fossil fuels, and in many instances are considered hard to abate.  

That association is concerning. Indeed, the Net Zero Emissions by 2050 (NZE) Scenario demands that industrial emissions drop by approximately two Gt by 2030, yet industrial emissions have increased as much as 70% since the turn of the millennium.  

To dramatically reverse this trend and meet these pressing end-of-decade targets, aggressive government policies and technological advances will be vital.  

Outlining the infrastructure challenge – and opportunity 

There are several common hurdles across each of these high emitting sectors which must be overcome to reach net zero. Among the most significant? Infrastructure.  

For net zero to become a reality, many aspects of the modern world will need to be drastically overhauled, redesigned or transformed. In the words of PwC: “Whole areas of the economy will need to be redesigned. Combustion engine vehicles and fossil fuel power plants need to be phased out. Huge stocks of electric vehicles (EVs) need to be created. Buildings and homes need to be retrofitted for energy efficiency.” 

These shifts won’t happen overnight. A significant reason as to why energy, industry and transportation are the highest emitters is because of their critical importance to global societies and economies. From the cars on our driveways to the steel used in everything from skyscrapers to cutlery, the activities, products and solutions these sectors underpin are completely embedded into our daily lives. 

Jeopardising this high social and economic reliance in favour of net zero is unfortunately somewhat unrealistic. However, that is not to say that the transition shouldn’t be gathering progressive momentum. 

Achieving cleaner, greener industries will in some cases be made easier by the potential to directly substitute net zero solutions into existing, fossil-fuel centric infrastructure. 

This whitepaper from Mitsubishi Heavy Industries (MHI) Group, in partnership with Reuters, explores exactly how existing energy infrastructure can become part of a greener future, for example.  

One of the most significant concerns surrounding energy transition, particularly in relation to the energy sector, is the threat of “stranded assets”. The fear is that a dramatic shift to clean energy will result in huge scale backs in the operations of coal-fired power plants, driving huge asset losses for energy producers. However, this isn’t always going to be the case. 

There are many opportunities to use existing fossil fuel infrastructure, such as natural gas-fired power plants and pipeline networks, to scale up a new flow of low-carbon solutions – like clean hydrogen and ammonia.  

Several blueprints for success have already been made public. The repurposing of the Drax coal-fired power plant to become the UK’s largest renewable power station (although there is controversy around the nature of the feedstock going into it); Nanticoke Solar PV Park in Canada; and the SouthCoast Wind Energy Brayton Point project in the US all stand as prime examples. Instead of ignoring the needs of net zero, operators must embrace this trend, actively repurposing their assets for net zero.  

In industries where fossil fuels continue to take a leading role, solutions such as carbon capture, utilisation, and storage (CCUS) technologies can also be used make a huge difference.  

Capable of being installed within power plants running on coal, gas, biomass or waste, CCUS can be used to generate low-carbon electricity that can then replace fossil fuels as an energy source. Further, CCUS offers significant potential in helping to decarbonise hard to abate sectors. In the case of cement, for example, it currently stands as a beacon of hope, capable of achieving deep GHG cuts for a sector that’s responsible for approximately 7% of global emissions.  

It is no coincidence that CCUS forms a central part of the long-term energy outlooks of organisations such as the IEA, International Renewable Energy Agency (IRENA), and Intergovernmental Panel on Climate Change (IPCC).  

According to the former, operational facilities fitted with CCUS can capture roughly 90% of the CO2 present in flue gas. 

Cost is a critical obstacle 

In some sense, opportunities to repurpose existing fossil fuel infrastructure and embrace key solutions such as CCUS are quick wins given the scale of the challenge in other areas. Unfortunately, simple solutions aren’t always so accessible.  

Take transportation as an example. To reiterate, roughly four in five road vehicles currently run on internal combustion engines. However, looking at road freight in particular, a report from the World Economic Forum and Accenture highlights the need to achieve a 53/47% split in the sale of battery-electric and hydrogen-powered trucks in 2050. 

To accommodate this, the infrastructure challenge will be immense. Powering these trucks will require 680 gigawatts (GW) of new clean power generation capacity and 50 million tonnes of hydrogen production a year will be needed by 2050, costing $1.3 trillion and $650 billion respectively. In the case of battery-electric trucks (BETs), meanwhile, between $600 billion and $1 trillion in investment will also be needed to build 11 million electric-vehicle charging stations. 

Looking at hard to abate industries, the report estimates that $13.5 trillion will need to be invested into renewables, clean hydrogen and CCUS infrastructure globally in order to make net zero an attainable reality.   

It’s an astronomical figure that presents a massive problem. Investments are undoubtedly needed. However, question marks remain over who exactly will be paying for these necessary changes. 

Given that many parts of the private sector will struggle to absorb the costs associated with such substantial net zero investments, the role of public funding and the reduction of technology costs will be vital moving forward. 

It’s also important to consider where such efforts will have the most impact. Looking at the WEF report, it’s estimated that a “green premium” could result in ammonia costing between 40-120% more per tonne, which may in turn push the end cost of food up by as much as 15%.  

This can’t happen. Instead, governments and industries alike should align to prioritise investment in logical areas. 

Here, oil and gas provides a sound opportunity. According to the WEF, the $880 billion price tag for reducing oil and gas emissions to align with net zero by 2050 represents just 4-6% of industry capital expenditure. Given the industry sustains an average profitability rate of 20%, the sector is in a particularly good position to self-fund its own net zero transition.  

Opportunities such as these must continue to be identified. Net zero must remain the priority – without action now, the odds will continue to be increasingly stacked against these high emitting sectors that may ultimately be responsible for driving up much more significant climactic impacts.

— Lew 👋

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