The race to deep decarbonization: Episode 1

NARRATOR  Hello, and welcome to this special episode of DNV’s Talks Energy podcast. Five years ago, at the 21st Conference of the Parties, or COP21 as it’s more commonly known, 196 countries adopted the Paris Agreement, a legally binding international treaty which aims to tackle climate change by limiting global warming to well below 2 degrees C, and pursuing efforts to limit it to 1.5 degrees C by 2050. In this two-part documentary, we will explore the topic of deep decarbonization, an urgent and complex challenge that requires difficult decisions and actionable plans.

We’ll assess the technology, policy and investment challenges we must overcome, and the action still required if the ambitious goals of the Paris Agreement are to be met and a green energy future is achieved. We speak to world-leading experts from across the industry who understand the key enablers for deep decarbonization and ultimately provide in-depth, actionable insight for businesses looking to phase out carbon-intensive fuels in favour of clean energy. We hope you enjoy the episode.

Climate change is having far-reaching effects around the world, with natural disasters and extreme weather events becoming increasingly commonplace as a result. In fact, there have been over 7,000 major natural disasters recorded in the 20 years from 2009 to 2019, killing 1.23 million people and causing $2.97 trillion in economic losses.

In a bid to combat dangerous global warming, the United Nations Framework Convention on Climate Change, or UNFCCC, along with its member parties, developed the Paris Agreement, a pledge to reach global peaking of greenhouse gas emissions through the long-term decarbonization of the world’s energy infrastructure. While this ambitious climate action requires wide economic and social transformation, the Paris Agreement also provides a pathway to support developing countries in mitigating their carbon output and working towards neutrality. With 2030 fast approaching and the race on for net zero by 2050, a process of deep decarbonization is required, and it must start now.

DITLEV ENGEL  Deep decarbonization is, in my opinion, quite a different thing than for decarbonization.

NARRATOR  You’re hearing from Ditlev Engel, CEO of DNV’s Energy Systems business. Working with a range of stakeholders, from investors and policymakers to technology companies and end users, Ditlev has a unique perspective on the carbon-abatement challenge.

DITLEV ENGEL  I think we will definitely see, going forward in the world, that a lot of countries and companies will focus on decarbonization, and that’s, of course, very, very important. However, what we see in nearly all reports around the world that are being published, DNV’s Energy Transition Outlook included, is that we are not getting close to Paris, and there are today many companies and countries that have net zero pledges.

However, many of those net zero pledges will be very difficult to get us to the Paris Agreement, and therefore deep, deep decarbonization means that we have to put plans in place that will constantly reduce the carbon emission in line with what is required from Paris.

NARRATOR  For Ditlev, deep decarbonization is a problem to solve on two very distinct fronts.

DITLEV ENGEL  So when we look at the deep, deep decarbonization, we are actually faced with two challenges. One challenge is all the things that we need to scale up very, very fast, that is scaling up of renewables, it is the building out of grid, it is energy efficiency programmes, all the things that will help us really to scale all the non-emitting technologies that are going to help us, going forward.

Then, we have the hard-to-abate sectors, and the hard-to-abate sectors are those that we do not really have a solution for at the moment. It can, for instance, be what are we going to do with the airline industry, how are we going to handle that? How are we going to handle very heavy industries where you can’t solve it with some of the solutions that we have already.

NARRATOR  It’s clear, then, that there isn’t one simple solution to the problem of decarbonization. It will require urgent attention from all industries and stakeholders to make it happen. Just how far and deep does CO2 reductions need to go to meet Paris Agreement goals? We spoke to Dolf Gielen, director of innovation and technology at the International Renewable Energy Agency, or IRENA.

DOLF GIELEN  It would need about a 70% CO2 emission reduction by 2050, compared to current levels. And it’s clear that the impact of climate change is much more significant than was previously thought, and that’s why there is now a drive to aim for a maximum of 1.5 degrees climate change. We need to completely eliminate emissions in the energy supply and on the energy demand side.

NARRATOR  So then, while it may seem, on the face of it, that substantial progress is being made towards climate impact reduction, the energy transition must rapidly accelerate if goals are to be met. With this in mind, which areas must individual countries focus on in order to achieve deep decarbonization? DNV believes there are three main components required. Greater energy efficiency, scaling of renewables, and removing carbon from fossil fuels. Let’s look at each of these in more detail. Lucy Craig, Director of Growth, Innovation and Digital at DNV, shares her thoughts.

LUCY CRAIG  Energy efficiency plays a central role in the energy transition. In DNV, our energy transition outlook finds that if there were no energy efficiency improvements, then global energy demand would increase by 65% between now and 2050.

NARRATOR  But energy efficiency must work in tandem with the rapid scaling of renewable technologies and infrastructure. Let’s hear from Lucy again.

LUCY CRAIG  In contrast, we forecast an almost flat development in energy demand, due to factors that include electrification, the rapid increase in the use of electric vehicles, and also improvements in energy efficiency in sectors such as building and manufacturing. Also, scaling renewable energy sources and extending their reach through the electrification of new sectors will significantly reduce emissions. That will require advances and scaling of technologies and infrastructure in solar, energy storage and power grids.

NARRATOR  Infrastructure development, as Lucy highlights, is a pivotal factor in whether clean technologies can be scaled up. Power grids must be modernized to cope with the integration of renewable energy and increase in demand, while ensuring reliability and power system stability. Improvements to the capability and capacity of energy grids will therefore be vital.

DUNCAN BURT  There’s a significant shift of energy use in the economy onto electricity, from 25% five years ago to somewhere between 50% and 75% of all of the energy that you and I use will come through the electricity network.

NARRATOR  That’s Duncan Burt, director for COP26 at National Grid Group. He explains to us what the implications of higher electricity demand are on energy networks.

DUNCAN BURT  That risks quite a significant, expensive expansion of that network, unless we deploy an awful lot of flexible and smart technology. And all the studies show that, so we need to make sure that we have flexible, smart, time of use, all of that technology in place, both to avoid network investment and then to encourage consumers to use electricity, encourage you and me to use electricity, when it’s cheap to do so.

NARRATOR  So, in the quest for net zero, the National Grid network, in line with all energy grid operators across the world, will need to evolve and adapt. With the scaling that is expected, it is imperative that a level of flexibility is maintained. One of the key areas where grid and infrastructure development is essential is for electric vehicle charging.+The UK is just one country that is forecasted to see exponential growth in electric vehicle use in the coming years, with an estimated 36 million expected to be on the roads by 2040. This will only be achieved, however, if there is a means of keeping them charged. So, what are the particular challenges associated with this aspect of infrastructure development?

DUNCAN BURT  The real challenge is those long-distance drives, and actually I’m a two EV family, we’ve got a Tesla and an Audi e-tron. The real challenge is those long distances, and we can see that in the surveying and the policy studies that we’ve done as well. Your EV range, at 200, 300 miles is fine for most people’s everyday use, but it’s that five, ten times a year when you go to visit friends or family or you go a bit further away, you want to know that you can charge on the motorway or that you can charge at your destination in a relatively sensible amount of time.

And charging technology today, at 150 to 250 kW, will allow you to do that while you stop for a break, take the kids into the shop or have a cup of coffee, and check your emails if you’re on business. And that’s fine, but there needs to be many, many more of them. And the challenge of putting many more of them in quickly is that you need the electricity network upgrades to go with it, and local batteries in order to really make it happen.

NARRATOR  Electric vehicles, if rolled out as quickly as hoped, will be a major contributor to a reduction in CO2 emissions right across the globe, but it’s just one of many areas that must be developed in order for goals to be met. The scaling of certain clean technologies, in particular carbon capture and storage, as well as green hydrogen, will also play a huge role in decarbonizing sectors such as manufacturing, aviation and shipping in future. Back to Lucy Craig.

LUCY CRAIG  In DNV, we forecast that fossil fuels will still account for about half the world’s energy supply in 2050, and that three-quarters of fossil fuel emissions come from combustion at the point of end use, so the scaling of carbon capture and storage and hydrogen technologies are needed to deeply decarbonize fossil fuels, and also the development of a hydrogen economy to fuel those hard-to-abate sectors.

The oil and gas industry is already moving ahead with measures to reduce emissions from getting oil and gas out of the ground and to consumers, which accounts for about a quarter of the industry’s emissions, and that is being done by electrifying offshore platforms and oil and gas assets, by reducing flaring and venting, and increasing efforts to detect and stem methane leaks, and also through efficiency gains, by digitalization of the oil and gas value chain. And so, many of these measures provide cost benefits as well as reducing emissions.

The big challenge lies in addressing the other 75% of emissions from oil and gas, which are released at the point of combustion. Ambitions in the hydrogen sector are sky-high, and so we see that the industry is rising to the challenge of a hydrogen economy, and the business case is growing, but we still need to address challenges that are related to investment, safety, infrastructure, production and also policy.

NARRATOR  As Lucy suggests, green hydrogen is facing a global resurgence. Occurring when clean electricity generated by renewable technologies is used to electrolyse water, it is set to become a vital energy source in the coming decades, and those involved with its development recognize its potential, including Denmark-based renewable energy company, Ørsted.

CHRISTINA AABO  We’re also investing into hydrogen, and to make sure that the renewable energy, basically the electrons can be transformed to other energy types and fed into other energy sectors and systems, so that we are not just using electricity from renewables but actually adding to industry and to other consumptions as transportation, heavy transportation, trucks, vessels, aviation and so on, that other sectors can be decarbonized as well.

NARRATOR  We’re hearing from Christina Aabo, Ørsted’s head of research and development for offshore. Once focused on fossil fuels, today Ørsted is one of the world’s most sustainable energy companies, and a global leader in the transition to clean energy.

CHRISTINA AABO  That is what I see in the future will be a huge market, and kind of the new paradigm shift, not just focusing on renewable energy generation but actually taking it further into new sectors that cannot easily be electrified.

NARRATOR  But while the future of green hydrogen looks bright, does Christina feel we are rising to the opportunity that it presents?

CHRISTINA AABO  The different elements, the technologies, we basically have them. Electrolysers are invented, they are working. They need to be scaled. Of course, there also needs to be inventions and innovations and new adaptions and improved technology, and definitely the industrialization and the scale-up needs to be happening.

NARRATOR  DNV’s Energy Transition Outlook forecasts that the world will exceed the Paris Agreement’s 1.5 degree C limit on global warming by 2028, and the 2 degree C limit by 2051. Our forecasts point to a warming of 2.3 degrees C above pre-industrial levels by the end of the century. So, what has prevented decarbonization from taking place as rapidly as required, and how can key challenges be overcome? We spoke to Steffen Frydendal Poulsen, senior vice president of technology development at Siemens Gamesa. He told us:

STEFFEN FRYDENDAL POULSEN  I think it’s about, first of all, it’s definitely establishing the right cost of energy. It’s also about ensuring the right time to market. And if we take an example, from 2010 to 2020, the levelized cost of energy from offshore wind was reduced by a factor of three across the industry.

And of course, that was based on a lot of different parameters, but among those, the time to market of new technologies, but also that we ensure that we get better performance of the products we have, was key for that improvement. And if we look forward, we need to continue that journey to deliver additional improvements, going forward. And again, the technology development part will be a key for that success.

NARRATOR  Dolf Gielen from IRENA agrees.

DOLF GIELEN  20 years ago, there was no offshore wind. Now, there is offshore wind, and, for example, in the case of a country like the UK, it’s really critical and it opens up a whole new avenue of how you can decarbonize. It’s the same story with electric cars. Now, we have the batteries that have the capacity, that have the performance and the cost profile that you can apply them on a wide scale, and therefore now you see that electric mobility takes off.

NARRATOR  The cost of technologies will play a big role in how quickly we can decarbonize. As Steffen and Dolf explain, prices will eventually be driven down as they advance and prove themselves to be reliable investments which are both cost-effective and competitive for consumers, just as we’ve seen with onshore wind and solar PV.

Earlier in this episode, we heard DNV’s Ditlev Engel allude to the challenges facing airlines and heavy industry, but existing infrastructure, such as buildings and industrial facilities, need to be modernized too, says Dolf Gielen.

DOLF GIELEN   The next challenge is how to decarbonize the end-use sectors, so buildings, transport and industry. Decarbonization of these sectors is not that easy. So, you can of course apply renewable electricity to replace fossil fuels, you can deploy hydrogen and some other solutions.

You see it in electric mobility, that is rapidly ramping up now, and we need the same in, say, building heating, and we need the same in various industrial processes. And so, we’re currently having discussions with the key stakeholders in these sectors, what are the economics, what are the main barriers, what kind of enabling frameworks are needed to make such a transition feasible?

NARRATOR  Collaboration between industries, regulators, NGOs and other stakeholders will play a key role in accelerating the energy transition, and modernising ageing infrastructure, technologies and systems. Christina Aabo certainly believes that this is an important factor in Ørsted’s journey.

CHRISTINA AABO  Collaboration is the key word. Collaboration between governments and government institutions and bodies, regulators like National Grid and so on, as well as private companies and the entire supply chain. We also do collaborate with direct competitors, other companies doing offshore energy projects.

And for instance, one way of collaborating is that we are together in a Carbon Trust Offshore Wind Accelerator, a research and innovation platform, for the last 11, 12 years, based out of the UK, and where we are now, with nine or ten largest offshore wind developers going together, doing common R&D projects together. By doing it together, we can basically change the standard for how we do things in the market.

NARRATOR  In fact, DNV’s latest Technology Progress report found that when several technologies overlap and cooperate, a step change which accelerates the uptake of new technologies can follow. This can be identified using two main criteria. First, the technology’s ability to achieve a shift in the energy system, based on how quickly it is being deployed and how much it’s expected to cost over the following five years.

Second is how the technologies interact with each other, sometimes referred to as sector coupling. For example, floating offshore wind alone can provide electricity to the grid, but if interconnected with a meshed offshore transmission grid, new integrated battery technologies, connected electric vehicles and green hydrogen production, it can improve the flexibility and accelerate the usefulness and competitiveness of the whole system.

Because the pace of the transition is intensifying, describing any given technology is like painting a fast-moving train. And while there are clear challenges to overcome when it comes to the adoption of rapidly changing technologies, there are reasons to be optimistic. Back again with DNV’s Ditlev Engel.

DITLEV ENGEL   I think we all know that industrial revolution is something we have seen many, many times in the history of mankind, that we have seen massive changes, and this is no different. The only difference here now is that the stakes are really, really high, probably the highest stakes one could possibly think of. And therefore, to get it right is, of course, obviously so, so critically important.

We have to find a moon-shot landing like never before, and many of the technology challenges we have is to be addressed in that way. So, I think it’s important to remember that the mindset on which we undertake this challenge is as important as all the other things that we normally talk about.

NARRATOR  As Ditlev highlights, a change in mindset is required if we’re going to meet the Paris climate goals. And while the price of failure is extremely high, there are social and economic benefits to deep decarbonization that are driving change. Lucy Craig gives us her take on what these benefits and drivers are.

LUCY CRAIG  Above all the benefit and actual clear need is in averting the worst effect of the climate crisis, from effects on people’s lives and societies, to the environment and ecosystems, to the huge financial cost. That is the aim of the Paris Agreement, and that is what’s driving the need to transition faster, to a deeply decarbonized energy system.

But as the world transitions, there are many other benefits, particularly if we also achieve a just transition. Millions of highly skilled jobs can be created, and there are opportunities for technologies such as solar and distributed grids to advance access to electricity in regions which are currently underserved.

A just transition would also mean diversifying energy supply to increase security and reliability and increasing the affordability and availability of energy as renewables scale. This will also achieve reduction in pollution and other localized effects of burning fossil fuels.

And finally, the health and social benefits of greater electrification can include enabling a switch from biomass or other polluting fuels in home cooking in many parts of the globe.

NARRATOR  And there is certainly action that must be taken to meet carbon goals. Although further work is required, net zero is achievable. Technological development is critical to meeting the Paris Agreement, but must be supported with action from both regulators and investors. Governments and other key decision-makers must ensure that we have frameworks and infrastructure in place to phase out carbon emissions as is necessary.+Join us next week for episode two of this special documentary on deep decarbonization, where we look at the crucial role of policy and investment in reducing global emissions.

SPEAKER  Investment does need stable policy landscape in order to thrive, and in order to reduce a cost of that capital, investors require a lower return when they can see long-term, stable revenues coming through.

NARRATOR  And explore how businesses can take practical steps to progress with their transition towards clean energy and help limit global warming to within 1.5 degrees C. To listen to more of our podcasts, visit dnv.com/talksenergy.