MATHIAS STECK    Hello and welcome to the 13th series of the DNV Talks Energy Podcast. I'm your host, Mathias Steck. During this series, we’ll be exploring some of the key insights from DNV’s Energy Transition Outlook, our annual independent model of the world's energy system, and what they mean for the future of our planet. Across the series, with the help of leading industry guests, we’ll shed light on what's happening right now and the forecast as we move forward. We’ll explore topics from the geopolitical developments affecting the energy transition to what's needed from technology, finance and policy in delivering net zero. Crucially, we ask - how do we move from ambition to urgent action over climate change?

I'm delighted to be joined today by Mauricio Riveros, Associate Director at the Carbon Trust. In this episode, we focus on the global carbon emissions and how these have not reduced at the rate needed in order to align with net zero. Along with my guest, we will discuss the reasons behind this and what needs to be done to turn this around. We'll also explore how a detailed understanding of the world's major emission sources and any changes to this overall picture can help prioritize choices now over clean energy, decarbonization and energy efficiency. We hope you enjoy the episode.

Welcome to the DNV Talks Energy Podcast, Mauricio. It's a pleasure having you here.

MAURICIO RIVEROS    Thank you very much, the pleasure is mine. Absolutely delighted to be here.

MATHIAS STECK    So, for the benefit of our listeners, could you give us some background about yourself and your role at Carbon Trust?

MAURICIO RIVEROS    Yeah, sure, with pleasure. Well, I'm an Associate Director within the Energy Transition team at the Carbon Trust. In the energy transition team, we’re focused in all challenges related to energy transition across heat, transport and electricity. And we have four main focus areas which are, basically, renewable integration, then networks and flexibility, coal retirement and clean hydrogen. Our team, because we are part of the Carbon Trust, it's focused in the decarbonization. I don't know how much you know about the Carbon Trust, but to summarize, basically we are a mission-driven organization with a focus on accelerating the decarbonization of the economy. We are considered an expert guide for reaching net zero, building on our twenty years of experience decarbonizing different types of sectors. And we are a global organization with more than 400 experts internationally.

MATHIAS STECK    So it's overall understood that climate change is a real threat. And we have defined - or countries have defined - a lot of contributions and targets they want to meet at certain times down the line, so in 2030 or 2050. But we are very much behind of these targets. Why do you think that is?

MAURICIO RIVEROS    Well, indeed, first of all, it’s absolutely well understood, and for sure, a big driver for the energy transition is definitely the climate change and the increasing commitment to decrease emissions. And I would say we have made - us as humankind - a big step forward in terms of understanding this as a common threat, in terms of putting in place different frameworks for collaboration and setting different targets and making different levels of progress in several places. However, indeed, as you say, there's still a big challenge to reach, really, net zero.

And why this is happening, I would say, first of all, there's a lack of understanding of what is net zero. When you speak several times with, actually, corporates or companies, depending on - depending on the sides, actually, they have several understandings between what - and confusion between net zero and for example, carbon neutrality. So I guess that's a kind of a first thing.

Secondly, also, of course, there are different challenges related to reaching net zero. And the main one is that to reach net zero, you - you need to take a systemic approach. And because a systemic approach is needed, there are different interests involved. And although there are clear commitments, it's not easy to put all the interests in place to really reach to those commitments. Then on top of that, you have some storms happening, crises like the current war in Ukraine, for example, and as well the economical situation after the pandemia. Right? So, all of that makes the things more complex. But we are better, of course, than a few years ago. But still, there's a long way of progress to make if we really want to reach net zero.

And lastly, I would say also probably there's a lack of plans as well. So first of all, lack of understanding of what is net zero, and lack of plans of how reaching net zero. Therefore, you can have those targets, but then the question - how you really reach them? So it's defining the - the pathway and then be able to - to go through it.

MATHIAS STECK    So part of the plan is identifying the problem and we currently are heading towards a 2.2 degree warming. Massive early action to record emissions is critical. And the window, as you also just alluded to, is actually closing - the window to act. Can you clarify what and where the world's major emission sources are?

MAURICIO RIVEROS    Yeah, with pleasure. You can see several references with regard to sources, but all conclude pretty much on the same type of figures: that first of all, the energy is the major sources of emission, for example, more than 74% if I'm not wrong, in the World Energy Data. And of this 74%, actually about also 70-something percent is for heat, transport, electricity, and then the other 20-something percent is in industry. But in general, more than 70% of total emission are in the energy sector. Therefore, the energy transition is absolutely key, because it's in the bedrock for reaching net zero. Because, it's not just to do the net zero for the energy system, let's say, but across the whole economy in several industrial process, if not most of them - if not all of them, sorry. The energy is there, and therefore the transition across the whole vectors is fundamentally the one really to decrease the emissions. So my response is: absolutely, the energy sector is the key work to tackle.

MATHIAS STECK    And in your opinion, are the primary contributors to this emission problem are doing enough about this already?

MAURICIO RIVEROS    Well, first of all, which are the primary contributors? Coal, right? Oil and gas. I think in coal, it was a big milestone, what was achieved in the last COP, to at least finally having an overall agreement in trying to phasing down quicker as possible coal. And in some cases phasing up, setting different years for actually reaching the total phasing out. But the commitment of basically doing that on coal, and also, most important user of coal also making some important announcement of not building new coal power plants is a major milestone.

However, there's still a long road to go and precisely on that, as I mentioned before, in our team, we are focusing in one particular area, in coal retirement. And we have actually developed and implemented what is the Coal Asset Transition Accelerator, which was launched at the last COP, where we’re working with several philanthropists and beneficiaries to identify opportunities to accelerate the coal retirement through the implementation of adequate financial mechanisms. So this type of practices, I would say, focusing on retiring a particular primary source such as coal could be a key to do it as well across other primary sources. But being coal one of the most, let's say, pollutant one and most impactful, of course, is absolutely fundamental to putting the priority on coal, first of all.

MATHIAS STECK    So we alluded a bit on differences in maybe energy sources and technologies when it comes to regions in the race to net zero. Different regions have different starting points and capabilities. And we see variations globally when it comes to emissions and where countries are on their path to net zero. Who would you say needs to move faster now? Those countries and regions who are leading already in the transition or those who are lagging behind?

MAURICIO RIVEROS    It's a very complicated question and I guess kind of having a very objective response is very difficult. But what is important is to really identify, I guess, the differences, clearly, between the countries that have moved quite fast, I would say, in the energy transition, which are mainly the developed economies, where we have a situation where actually the demand is not increasing massively and is much more stalled. There's a transition of where the demand is because of electrification, right, but the total demand of the energy sector is not increasing, such as in those countries where the economy is developing and the demand is increasing sharply, and is expected to increase at even a level of two or three times the current level of demand.

Therefore, although those countries that are under development have indeed big responsibility in current emissions, they need as well to take into consideration other aspects. And therefore, to try to ask, I would say, or expecting them to do the same pace of transition that those countries that doesn't have any increase of demand is not easy. And also, when there's different level of development of the economy and implication in terms of just transition is another aspect.

Therefore, I would say that rather than putting a kind of a focus on ‘where,’ pressuring one versus the other, the most important thing is how we can really reach a collaborative spirit. Because actually at the end what we aim to have is net zero globally. And if result at the end that some of those countries are not reaching net zero but others are reaching negative emissions then the global impact - putting aside of course the local impact of emission that could have - but the global impact in terms of climate change will not happen. And therefore the objective of reaching the target of the Paris Agreement would be achieved. Therefore, I think that the problem of saying: “Who should do the first thing?” is that probably by doing that, the collaborative spirit can be destroyed. And I think that's the most important thing.

MATHIAS STECK    So, going deeper on this collaborative spirit you mentioned, how about support for low income countries where we may see great improvement potential? And if we agree support should be given, in what form should this support be given?

MAURICIO RIVEROS    Well, that's a very interesting question because as I said earlier, I think we have made quite a major progress as humanity understanding the problem, and therefore, several important framework in place are already to channel funds, an important level of money to support low income communities and countries where there's more need of accelerating the transition, let's say. However, what is the reality is, apparently what is happening, is still not sufficient. Actually, I was just two weeks ago in an important international forum on coal to clean transition. Again, it's talking about the focus on coal, for example. And I would say the kind of main takeaway I took from that event is, first of all, is that this transition is happening - there's no question that it’s happening - and is economically viable, particularly talking about removing coal from generation and replacing for renewable energy. In the electricity sector, let's say, it's absolutely doable and realistic.

But the question is: how quickly it will happen? And something that has been present in voices from all representatives from different countries, from both Asia and Africa, is that they believe this need to happen, they want this to happen, but they need two clear support on what would be basically the replacement of the baseload. And here comes the point about when the demand is increasing, you need to have a credible replacement for the baseload. And of course, today, with the situation of gas, even is more complicated to talk about replacing coal.

And secondly, this transition needs to create local value, I mean, value in the local economies. So thinking about local supply chain development, to put the just transition angle in the top of the priority in this transition is absolutely fundamental. And all those countries always said: “We need more support in funds”, because many times those funds at the end are technical assistance and there's a lot of money available for training assistance. But then, when we talk about actually proper investment support, there's a big lack of possibility of getting access to those funds.

MATHIAS STECK    So the Intergovernmental Panel on Climate Change, the IPCC, has called for urgent action which has not materialized and emissions remain at record levels. But in order to secure now net zero by 2050, the emissions must fall, they say, by 8%. In the context of what you just described, is that a realistic target?

MAURICIO RIVEROS    Well, first of all, it's important, remember, I was saying about understanding what is net zero. Well, we have at the Carbon Trust a net zero business intelligence unit, which has defined what we understand by net zero and how we are taking this into consideration to really work with all our clients to explain it, basically, clearly, what means net zero. And - and the reality is that this is the scientifically way that has been proved to reach basically the targets of the Paris Agreement and scientifically have been demonstrated that to do that there's a need of having decreased emission by 50% before 2030, so in the next eight years. However, to reach that, we need, of course, to have a decrease of it per year, that I've just said, and is not what is happening. And the problem is it’s not happening and not only that, also the - the commitments already established by the NDC, all the NDC together are not aligned with the 1.5 degree target. Actually, the World Resources Institute has made a study, I think this year, last year, when they - they showed how misalignment they are between the different NDCs, right, and the 1.5 target.

Therefore, then comes my response. Realistically, from the point of view of the technological perspective and the scientific perspective, probably it is. And I firmly believe that - and we firmly believe at the Carbon Trust that - as older, let’s say, technology in the last few year has been competitive, for example, solar and wind - and a few years ago the price of were not possible - and today, the electricity - there's a clear solution becoming available for the world of transition. We are in the way of doing the same with heat and transport, and all the prices, for example, in terms of electrolysers that today are too expensive can decrease in this timeline if there is sufficient collaboration, innovation. But the science and the technology shouldn't be a problem. What the problem would be in terms of realistic is if actually, let's say, the political landscape and economical situation, allow to do it. And at the end, because of course is relationship between humans. That's why it's so important the collaborative spirit and collaborative between all entities at all level.

So I would say, if it's sufficiently collaborative and sufficiently understood how to do it, taking a systemic approach, it should be possible to do it. But the problem is that all the models, while complex they could be, they will never be able to really replicate the complexity of the reality of the politics, geopolitics, economy, etc. So, is it realistic? Depending on from which angle is taken, but, and that's my personal opinion, not because it's so difficult, it's not achievable. We have been possible as humankind to do things much more incredible, maybe that you can’t believe before doing it. Why not this? But of course there will need a lot of collaboration that today is happening, but not sufficiently.

MATHIAS STECK    So clearly, the energy transition is multi-faceted and complex, but it also holds a lot of opportunities. Can you elaborate on what these opportunities are and how they play a role in reducing, potentially, global emissions?

MAURICIO RIVEROS    Indeed, there's several opportunities and there are so big amount of opportunities across different areas that I think we could be speaking for long. Therefore, what I would say is to just focus on, for example, one case, which is opportunities in the transition from the power sector and talking about actually the experience of the work we have done at the Carbon Trust. Let’s first put maybe in context this. So for the power sector, the main transition happening is the penetration of renewable energy, particularly variable renewable energy such as solar and wind. That is - because it's variable, it is not flexible and it create a need of more flexibility within the system. Today, the flexibility is provided by the current conventional generator, mainly fossil fuels, and therefore what is in need is to find other sources of flexibility. What we have worked is particularly focusing in enabling demand-side response as a big source of flexibility, and it has been demonstrated that by doing that, there's a massive savings across the whole value chain, particularly in decreasing the total cost of development of the distribution grid, the transmission grid and better utilization of the renewable energy.

But to make possible basically all these big benefits is need new players. And for example, in the case of the power sector, there have been, for example, in the case of the UK, deployment of massive number of aggregators, that means new players, new technologies being integrated within the system and therefore new companies appearing, and opportunity for startups. And here comes also the point about the value chain I was talking before, when the renewable energy is integrated within a system, new markets as well, and - new markets, new players and new technologies, yeah, these are basically the three that I was mentioning in the case of power sector. Therefore, the new players aggregate to new markets. For example, markets for grid services in this transition from DNO to DSO. And the new technologies: any kind of technology related, for example, for energy storage, in different types of energy storage in the sector. In the demand-side response, digitalization are create a big opportunity as well for new players and new - ah, that was the last one I was thinking, I just forgot - business models, new business models.

So it's not just innovation and technology, but also innovation and business model. So as you can see, it’s a massive opportunity, just on the power sector. And actually, identifying that ten years ago in the UK - and we published a report which identified what would be the savings depending on the different scenarios of decarbonization the UK had at that time. Ten years ago, the savings in average were in the range of £40 billion, if demand-side flexibility was enabled. That was a key evidence that pushed for the deployment of storage and - and opening of several grid services market in the UK. Now we have been working in identifying those opportunity in decarbonization of heat and transport and - and also what are the different barrier to overcome and what are the different opportunities.

MATHIAS STECK    Mauricio as my final question, I would like to ask you - what are the main drivers to help us with a successful race to net zero?

MAURICIO RIVEROS    Thank you for the question. Actually, our net zero business intelligence unit have identified five main key conditions that are needed to be complied in order to reach net zero.

First of all, is around awareness. As I was mentioning earlier, it's absolutely important to really make a clear understanding of what's net zero. So then all people across all type of stakeholders, governments, corporates, companies, even a civil society organization, understand the same by net zero.

Secondly, governance. There's a big importance of really having an improved level of accountability in terms of when someone, an organization said “We will do net zero”, okay, it's actually net zero or not. And who will be checking that and how accountable and credible are all those certification of the net zero?

Thirdly, finance. As I was mentioning earlier, there’s already a lot of opportunities already of finance, mainly focused purely in area where there's more need. However, there's still a big need of finance, and those finance are not linked with net zero. Therefore, how to really channel the funds? And depending on net zero targets and understanding how this can be done properly is another third big important condition.

The fourth is technology and innovation, particularly for decarbonization of heat and transport. Heat and cold, of course, depending on the cases of the country. Heating will not be here in Singapore, for example, here’s more cold. But technology and innovation and innovation across business models as well. And here comes the opportunity for new players that we are talking about. For example, in the power sector, I mentioned about aggregators and new different business models.

And finally, just transition. And maybe here I want to reflect a little bit more about what we were saying before - who we should put the pressure? Rather than putting the pressure, we need to understand all, I would say, that the most important thing is putting as a priority just transition. And therefore, how this transition is happening - without affecting the economy and in all places. And creating a good life standard and not affecting the working conditions, particularly in those places where today still fossil fuels are highly used, is absolutely fundamental. Because if just transition is not in the core of the transition, probably those countries will not do the transition.

MATHIAS STECK    Mauricio, thank you so much for these really interesting insights. It was a pleasure having you.

MAURICIO RIVEROS    Thank you very much, thank you for the invitation.

MATHIAS STECK    Thanks for joining us for this week's episode, in which Mauricio gave us a sobering assessment of where the world currently stands on the path to net zero. He suggested that the lack of concrete plans mean that a range of leading projects risk falling short of their potential. He also called for a more systemic approach to battling climate change and suggested that when a collaborative spirit is employed, great things can be achieved. Join us next time as we discuss how technological advancements within power grids and electrification could be the secret weapon in fighting climate change.

To hear more podcasts in the series, please visit dnv.com/talksenergy.