The road to COP26

NARRATOR    Welcome to the DNV Talks Energy podcast series. Electrification, rise of renewables and new technologies, supported by more data and IT systems, are transforming the power system. Join us each week as we discuss these changes with guests from around the industry.

MATHIAS STECK    Hello and welcome to the eleventh series of the DNV Talks Energy podcast. I’m your host, Mathias Steck, and I’m excited to be back in the interviewer seat after DNV’s two documentary podcasts were published earlier this year. In this series we’ll be exploring what needs to happen on a global scale from a political, financial and technological perspective to achieve 1.5 degrees.

COP26 is a pivotal moment in the race to decarbonization. But how will political commitments be turned into action, and how can industries support climate change ambitions and make them a reality? In this episode, published ahead of COP26, we highlight the challenges that world leaders will need to tackle as they come together in Glasgow, UK for this crucial summit. To discuss this, I’m joined by three of my highly knowledgeable and experienced colleagues here at DNV. Sverre Alvik, Program Director for the Energy Transition Research Program and Author of the new DNV report, Pathway to Net Zero, Al-Karim Govindji, Head of Public Affairs, and Hari Vamadevan, Regional Director for the UK and Ireland in DNV’s Energy Systems business. With the help of our guests today, we’ll highlight what needs to happen to ensure that when the dust settles after COP26, actionable roadmaps for deep decarbonization are put in place across the world. We hope you enjoy the episode.

So, welcome to all of you, Sverre, Hari and Al-Karim, and many thanks for taking the time to joining me today. Sverre, I would like to begin with you. You are the author of a new DNV report, the Pathway to Net Zero Emissions. Could you give us an overview of the key points that are made in that report?

SVERRE ALVIK    Yes, thank you Mathias. Yes. First, this Net Zero Pathway report is something new from DNV’s side. We have for five years now been publishing an Energy Transition Outlook pointing at what we see as the most likely future, with the expected economic political technology developments. And that future is leading us towards what we call a 2.3-degree future in 2100, meaning it’s not a future we want. Now, for the first time, we want to contrast this by doing a report and a model of, how do we achieve the future we do want? How do we achieve a 1.5-degree future? And we do that by pointing to a net zero emission in 2050 future and looking into what each region and each sector needs to do to make their share of the contributions towards this 1.5-degree future.

And the main findings in our pathway to net zero is that, if the world is to reach net zero and, hence, secure this 1.5-degree future, then the leading regions and sectors have to go much more than zero, and much faster than 2050. Because the starting points of the world’s regions, they are very different and they’re both have varying energy intensities, they also have very various capabilities for how they can decarbonize. So, the OECD regions need to move much faster. As an example, both North America and Europe, they need to go to net zero already in 2043, and then go negative after that. And China needs to reduce emissions by 98% by mid-century, while other developing regions are yet not at the stage where they can decarbonize at mid-century.

The second main finding is that renewable electricity, hydrogen and bioenergy, they are the essential, and they will be responsible for 80% of this emission cut that we need. But 80% is not enough. We need to cut all emissions, and then we need also carbon capture and storage to take those remaining 20%. So, that is both carbon capture and storage, and carbon removal technologies such as direct air capture and forestation. And the third one, in order to achieve this, we need a massive early action, because we already lost three years since the IPCC 1.5-degree report in 2018. And if we are to have any chance of reaching 1.5 degrees, we now need to speed up even more across sectors and across regions.

MATHIAS STECK    So, Sverre, you just mentioned there the need for major economies to go further and faster to reach the net zero pathway. With COP26 about to take place, what needs to be achieved and how realistic is it that it will be achieved?

SVERRE ALVIK    First, COP26 needs to be much more than nice speeches and big intentions. It needs to get to the hard facts, and especially the hard actions. And again, these actions need to be early, they need to start in 2022. And we can do that by starting with the promises that we already have given and keep those. For example, this $100 billion a year on climate finance fund, we need to get those monies in place by the developed nations. And we need to get the NDCs, the National Determined Contributors, the pledges, they need to be updated and they need to be adhered to. And I think those two things in itself, they are relatively realistic, that is something we can have a good hope of achieving in Glasgow. However, the actions to scale this to the level prescribed in the Net Zero Pathway is much more difficult, and maybe not so realistic, that we certainly should be on our way to a 1.5-degree future, but we could hope that we take steps in the right direction.

MATHIAS STECK    Al-Karim, we’ve just heard Sverre talking about the pathway to net zero and what he believes needs to happen. In your view, what are the key challenges faced from a policy and funding perspective?

AL-KARIM GOVINDJI    Yes, indeed, and in some cases these two do intertwine. So, for example, if you look at government funding of clean technologies through innovation funding for hydrogen, for example. Or, historically, many markets through incentives to finance and support the deployment of solar and wind really facilitates some of these changes. So, finance and policy there comes together, in a sense. But taken separately, if you think about policy challenges, as Sverre just mentioned, the UN Framework Convention on Climate Change has reported recently, in July, that the 119 or so countries who are parties to the Paris Agreement out of the 190 altogether, and their 5-year nationally determined contributions, or NDCs, were inadequate to limit a global temperature rise by 2100 to 2 degrees, let alone a 1.5-degree world. So, policies need to be much more aggressive to make us reach the targets that are required. One of the ways policy can do that is phasing our subsidies for fossil fuels. Now, the challenge is, that’s not straightforward in every single country, and we’ve heard that different countries are at different stages of this transition. So, some markets are hugely reliant on coal for power and heating, and so the transition for them and for policy makers in those countries is much more challenging. For example, some of the Eastern European countries, India, China, as examples, and in these countries, or some of those countries in particular, need to be supported financially to enable that transition to happen. And so, as an example, the Green Deal that the EU has presented for 55 legislated packages, they came to being in July, establish a modernization fund, which was aimed at doing just to that, to support those countries make that transition. On the financial side, what I would say is, capital is available to make the 1.5-degree world happen by 2050 and beyond. If we look at the percentage of GDP that is spent on energy, it’s around 3.2% at present, and if you extend that, and what we see in our energy transition outlook to 2050, we anticipate that percentage to be closer to 1.6% of GDP. And so, if the current fraction that we have of 3% is maintained, then there’s more than sufficient funding there to enable that transition to happen. So, I think financially that money is there. But the one challenge we do have is that there are not enough projects for capital to chase. So, there are not enough renewable projects and the speed of new deployments are not fast enough for those financial markets to channel their funds to those sorts of assets. And so, if they don’t find those projects, then the capital will flow to other projects, so speed is really important here.

MATHIAS STECK    Hari, on that point I’d like to go a bit deeper here with you, so we have just heard that policy and finance are vital components in accelerating the energy transition, but we want to explore where technology comes in. And thinking specifically about renewables and the supporting infrastructure needed. We know that there is no shortage of funding. It is apparently, as we also just heard from Al-Karim, the availability of projects that is slowing things down. So, in your view, what needs to happen to unlock the potential to rapidly increase adoption of renewables?

HARI VAMADEVAN    Thanks Mathias. The success of achieving a low carbon energy system is very dependent on the buildout of electricity generated from renewable sources, such as solar and wind. For solar, the challenges are around decreasing the unit cost of panels and improving their energy efficiency to increase the uptake. But for wind, it is quite a different picture. Most future wind projects will be offshore, and there are three clear challenges, policy, supply chain and power grid capacity. On policy, it takes five to ten years to plan, permit, finance and build an offshore wind farm. This is simply too long. So, Al-Karim, you need to persuade governments to speed this up. The second challenge is around supply chains. With big ambitious plans for offshore wind from the US, UK, Europe and Asia, we will very soon have a lot of projects all round the world competing for the same resources. It is absolutely vital that we invest in local supply chains, local port infrastructure, local offshore vessels and, in particular, local talent. Otherwise, we’re not going to avoid a supply chain crunch in the future. And the third challenge is, how are we going to move all this additional electricity around? We need to upgrade and increase the capacity of the power grids. DNV’s ETO report highlights we need a doubling of grid capacity by 2050. So, Mathias, some very clear challenges to building out renewables.

MATHIAS STECK    Thanks Hari. And we have heard from all of you now individually about what’s on the top to-do lists of global governments ahead of COP26. I’m now really interested to get each of your views on what will actually be achieved in Glasgow. So, what I want to ask everyone is this. If political agreement could be reached on just one thing at COP26, what would you hope it would be? Let’s start with Sverre, and then Al-Karim, and then Hari.

SVERRE ALVIK    Thank you. Yes, I would really hope that you can reach political agreement on the distribution of this climate finance, so, who is to do what? And who is to contribute with how much into this $100 billion a year? But even more important than that, I think still is, we need to move all these ambitions and actions forward. We need to get the pledges and the view from a 2030, 2050 perspective down to a 2022 and 2025 perspective. So, instead of talking about peak emissions by 2030, net zero by 2050, we need to have strong commitments on what is happening in 2022, and where are we to be in 2025? Because this is what has been lacking over the last many, many years. To have early commitments and early actions across regions, across countries, across sectors. So, that is what I, more than anything else, hope for.

MATHIAS STECK    There is another aspect where I would like to drill a little deeper. You said this way of running a power grid would be very different from how we have done this in the past. I think there are also different ways how we look at emissions. You could say if there is a grid that is 50% wind and 50% conventional, then the emissions are just some average out of that emissions the generation is emitting, but we have this concept of average emissions versus marginal emissions and your technology makes use of this. Could you explain that in a bit more detail to us?

GAVIN MCCORMICK    Sure. So, I would say in the past, who were the people that spent most time counting emissions? It was carbon accounting companies and corporate sustainability teams and their tools were primarily focused on, whose fault are the emissions? So, there’s a long history of averages being used as a way to decide, if two companies live in a power grid and they each use half the electricity, whose fault is it that there are emissions? You could say, okay, let’s cut it down the middle. If they both use half the electricity, then half the pollution belongs to this company and half the pollution belongs to that company, but that framework is very focused on blame. It’s very focused on the idea of, it’s important that we understand who is to blame for the pollution. And a very different way of looking at it is to say, how can we solve pollution? If you look at it that way, you can instead say, okay, if this company takes this action, what will happen in the real world as a result? If they build a wind farm, if they install an energy efficiency programme, if they change  electric vehicles, how is the world different in the real world? That idea would be called marginal emissions and it didn’t use to be such a big deal, but now that we are starting to see bigger and bigger changes in power grids, now that we’re seeing times, for example, that there’s no pollution at all, knowing what’s the real effect of doing something is becoming more and more important and we call that marginal emissions.

MATHIAS STECK    Thanks. Al-Karim?

AL-KARIM GOVINDJI    Yes, I would echo those points actually, and I think these interim targets, and achieving those targets, and to be on the pathway. Because many people can state these 2050 targets, but actually keeping on that runway year-on-year is so critical, because every year you lose makes your job of fulfilling the ambition that we need to achieve, that much more difficult. On the point around the funding that needs to be channelled from developed countries to emerging markets, I would absolutely agree that we need to achieve and sign up to that $100 billion per year, but I would say that’s just not fast enough, or is not significant enough. I think that number needs to be exponentially higher. And the reason I say that, and we touched upon this before, is that many of these less developed countries have not had the chance to develop their economies in the carbon-intense world, and they haven’t had that luxury. What they’re being asked to do right now is to move straight from their current situation, from an economic perspective, to an improved economic state in a clean way. And that’s a really tall order for any country to achieve, and that’s why I feel that developed countries need to take a much more understanding approach to this, and channel far more money through the emerging markets than they’re currently proposing to do.

MATHIAS STECK    Great. Hari, your point of view?

MATHIAS STECK    Thank you very much, everyone, for the great insights on that matter. What I would like to do is, now, to really fast-forward. Let’s imagine COP26 has happened, agreements have been reached, whatever they are. What happens next? Al-Karim, what do you expect will happen as each nation goes back to their day job of setting policy at a national level?

AL-KARIM GOVINDJI    Yes, thanks Mathias. One of the things to remember is that COP is not an end in itself, and it’s not the starting point, nor the finish point for what we’re trying to do on climate. And so, the exercise that each country has is an ongoing exercise to try and achieve carbon neutrality within the timeframe that we’re hoping to achieve. But certainly, having agreed certain targets at the COP, each country will, of course, analyse those targets, see what it’s signed up for, and compare it to the previous targets that it had set. And they will want to revisit the direction of travel that they’re currently on, to determine whether they are prioritizing the right technologies? What are the innovations that need to be financially supported? What incentives need to be offered, where there need to be taxes in place, or other mandates to enable action to happen? And importantly, how to facilitate private sector funding to support the massive deployment of clean energy that’s required? And so, they will need to do that in a just way as well, and one of the things that we need to bear in mind is that energy costs have a much more significant contribution to the percentage of the earnings of the poorer people within a country than the well-off. And so, the cost of these investments, particularly in these early years, could be quite substantial, which may require energy prices to be higher, thus really affecting those poorer people. So, I think making that transition much more just, and enabling policies to support those communities is really critical to make this happen. And I think the biggest challenge, that we’ve touched upon again, is speed. And we’ll need to make that transition, agree to those pathways which are much, much faster than they’ve ever looked at before.

MATHIAS STECK    Hari, building on what Al-Karim just told us there, what do you want to see from individual governments, both in developed and developing countries?

HARI VAMADEVAN    Mathias, I hope you will indulge me, because I’d like to see two things, and both actually relate to what Al-Karim’s said. The first is an economic and commercial framework that enables the money to flow to the right projects. At the moment, many clean energy projects are high CAPEX, capital expenditure, high risk, and low return. We need a new balance between subsidy and tax across the energy system. And the second, we absolutely have to speed up electrification, but also we do need to decarbonize those hard-to-abate sectors – heavy industry, shipping, aviation. These sectors are hard to electrify, so we need alternative pathways to net zero such as hydrogen combined with carbon capture and storage.

MATHIAS STECK    Right. Sverre, as you mentioned in the Pathway to Net Zero report, time, not capital, is the key constraint on achieving the world’s urgent target. What needs to have been achieved by COP27 in November 2022, in order for us to be confident that we are on track?

MATHIAS STECK    So, following the many discussions, and hopefully decisions made, at COP26 by the global leaders, Hari, how does this trickle down to consumer behaviour? Or maybe I should rather ask, how can governments help consumers to get on board with ideas such as, switch to a hydrogen boiler, buy an electric car? This will be massive investment by individuals to do these things.

HARI VAMADEVAN    Mathias, that’s actually a really great question, and I’m just going to take a step back, because it’s important to realize the energy transition is not a single transition, it’s multiple transitions. I actually refer to it as a three in one transition. Yes, it’s about energy supply and demand, but there’s also a jobs transition and a consumer transition, and we need to make the energy transition as easy as possible for consumers. So, where that could be, insulating homes, it’s low carbon heat for houses, it could be heat pumps, air source or ground source. Or, as you describe, a switch to hydrogen boilers, or also you referred to getting people out of the combustion engine and into an electric car. For all of these examples, we need costs to come down and we need energy efficiency to improve such that the green consumer transition is not just a lifestyle choice by the few, but a cost-effective option for all. And I think that’s really important.

MATHIAS STECK    Thanks for that Hari. And talking about the role of governments, and coming back to responsibilities, you also touched on, Sverre, what needs to change in the approach of governments to stay in power to do the right thing for their country?

SVERRE ALVIK    Yes, the governments, they have a toolbox, and they need to apply that entire toolbox. And in order to make that happen, we need them to be brave and to take both the easy choices and the more difficult choices. When we talk about difficult, or hard-to-abate sectors, it’s also about expensive-to-abate sectors. It’s easy to tackle the low-hanging fruits, which is what has been done. Now you need to tackle the not so low hanging fruits anymore, which are both technology-wise and capital-wise more challenging. And you need brave politicians to take those decisions that does not come by itself, does not come because you can save a little bit of money. But that comes by tough actions and tough choices, and that most of us are not ready to take ourselves, but that the governments need to take for us.

MATHIAS STECK    Thank you. I would like to thank you all for our discussion today, and I want to finish with a final question for every one of you. How do we make sure that the high-level ambition, or even specific commitments outlined at COP, turn into concrete legislation and firm action? Sverre, let’s start with you and then perhaps Al-Karim, and then Hari.

SVERRE ALVIK    We have said in our energy transition work that the technology is available, but the policy needs to step up. And one thing is brave politicians, another one is the width of tools that the politicians need to use. We talked about taxes and incentives, we talked about standards, we talked about mandates and bands, R&D support, and all this should be adapted to which sector and which maturity these sectors have. Different countries are at different stages of maturity as well. So, we need to use the entire toolbox with urgency, that is the number one commitment that we would like to see.

MATHIAS STECK    Thank you. Al-Karim?

AL-KARIM GOVINDJI   Yes, the UNFCCC will track each country’s NDCs, and we’ve touched upon this earlier, and provide updates on the progress that each of those countries is making. Right now, hardly any country is actually making the progress we need them to make. And so, I think it’s much more transparency, even some competition across countries, to see what other countries are achieving, I think could be an interesting way to try and promote action, when, for example, countries see their neighbours doing better than they are. And I think because the climate agenda is getting so much stronger, one doesn’t have to go very far on the news to now see this point around climate coming up as the number one or number two topic on the news. So, I think that consumer awareness of the importance of climate may facilitate a change here in how these countries track. But I would also say that governments need to provide that fertile, clean energy landscape, to ensure that change is not impeded. And so that balance between mandates and incentives needs to be there to facilitate change. And governments must be there to strictly track how those different end-users of energy, and generators and transporters of energy, are acting within that landscape.

MATHIAS STECK    Right, and Hari?

HARI VAMADEVAN    Yes, the goal is to reduce greenhouse gas emissions, and real change happens, Mathias, when everybody contributes. So, yes, as Al-Karim has said, governments need to lead the way, or as Sverre said, bold brave politicians need to lead the way, with a clear pathway to reducing emissions. Then companies need to step up and deliver on that pathway. But also, consumers need to ask themselves, how can I contribute? When there is a mindset change across all of these three groups, then we can accelerate the energy transition and stay within the 1.5℃ carbon budget.

MATHIAS STECK    Thanks for joining us for this week’s episode. It was fascinating to hear about what we can expect as world leaders come together at the COP26 conference to discuss the most pressing issues humanity faces. We’ll take a break while the conference is underway, but we are straight back afterwards with expert analysis and insights. Join us as we bring together experts from across the industry to discuss what was achieved at COP26, and what this means for the world’s roadmap to achieving net zero. To hear more podcasts in the series, please visit dnv.com/talksenergy.