Identifying pathways to net zero - Grattan Institute

Wildfires, storms, floods and other natural disasters are the physical and scientific evidence that human-induced climate change is worsening. Yet, emissions continue to grow and policies across the world remain short of what is needed to address the problem. Some countries are heightening their climate action and others have announced ambitious targets; still others remain hobbled by endless debates. Australia falls into the third category and illustrates the challenges ahead.

COP26 provides hope, tempered too, by remembered disappointments from previous such meetings. The hope remains that global leaders, still battling Covid-19, will find ways to align common interests with necessary actions.

The international community has been here before. Numerous scientific reports have delivered stronger evidence on a recurring theme—“climate change is already affecting every region on earth in multiple ways.” Unless there are immediate, rapid, and large-scale reductions in greenhouse gas emissions, limiting warming to 1.5°C—or even 2°C—will be beyond reach. These limits require cutting global emissions to net zero by 2050 (in scenarios limiting warming to 1.5°C) or 2070 (when warming is limited to 2°C), and earlier for developed economies.

The language of ‘net zero’ has become a rallying cry in recent years. The 2015 Paris Agreement formally recognises that limiting climate change requires achieving a global balance between emissions and removal of greenhouse gases to and from the atmosphere. That means no net emissions, or ‘net zero’. The agreement is to achieve this somewhere in the second half of this century; the earlier it happens, the greater the chances of keeping global warming below 2°C.

It would be ideal if all emissions were stopped. There would be nothing to balance, and temperature increases due to human-induced activities would slow and eventually stop. The real world is far from being this perfect, as illustrated by the numbers for each of the key sectors that contribute to the global total of about 50 billion tonnes of emissions per year.

The 2015 Paris Agreement formally recognises that limiting climate change requires achieving a global balance between emissions and removal of greenhouse gases to and from the atmosphere.

More than 50 countries have legislated or committed to net-zero emissions by 2050, 2060 or earlier; over 70 percent of global GHG emissions are now covered by net-zero pledges; and many corporations and industry sectors have signed up to some version of a net-zero target. Yet few of these bodies have clear plans to achieve the objectives or even a clear understanding of the meaning of ‘net zero’. Real commitment to the objective will flow from such an understanding.

Towards Net Zero

Electricity and heat are responsible for about 25 percent of global GHG emissions, and about 25 per cent of electricity comes from renewable sources, including hydro, wind, solar, and geothermal. The International Energy Agency envisages that in a net-zero world, almost 90 percent of electricity could come from renewable sources, mostly solar and wind, with nuclear power making up most of the rest. Additionally, most of the current transport and other stationary energy will have been electrified.

For countries like Australia, embracing nuclear power is unlikely, so a system of 90 percent solar and wind will need to be supported by considerably more transmission than exists today, batteries for short-term storage, and backed-up natural gas for the extended renewable droughts that periodically occur. Any remaining carbon dioxide (CO2) emissions will need to be balanced by CO2 removals.

Industrial and transport emissions are responsible for about 21 percent and 14 percent of global emissions, respectively. Shifting from gas to electricity, and from internal combustion engines to battery electric vehicles is already happening for personal and light commercial vehicles and will need to accelerate if these sectors are to contribute to reaching net-zero by 2050. Yet, in both sectors there are areas where the technology solutions look to be very hard, very expensive, or both. These include steel and cement manufacturing, longer-distance road freight, and aviation transport. Carbon capture and storage, and technologies to produce green hydrogen, feature strongly on the list of potential solutions.

Agriculture, the sector most directly threatened by a changing climate, produces about 24 percent of global emissions, most of which is methane that comes from cattle and sheep. This is a bigger issue in countries with a dominance of grazing cattle, such as Australia, and less so when meat comes from poultry and pigs. While the agricultural industry in many countries is looking at technologies to reduce these emissions, the prospects for going close to their elimination over the next 30 years are slim.

A three-pronged approach emerges. First, we must accelerate the deployment of what we know now. Deployment policies are ideally market-based carbon prices to achieve lowest-cost outcomes. Different political imperatives or government structures may mean a preference for regulatory obligations (for instance, emissions standards for vehicles) or direct funding of low-emission technologies by governments (for instance, reverse auctions for renewable energy, or projects to reduce industrial emissions). The promised funding from developed to developing economies must be delivered.

Shifting from gas to electricity, and from internal combustion engines to battery electric vehicles is already happening for personal and light commercial vehicles and will need to accelerate if these sectors are to contribute to reaching net-zero by 2050.

Second, we must mobilise investment in the research and development (R&D) of low- and zero-emission technologies across all sectors. Grant funding through a structured tendering or auction process is also likely to be the preferred approach for governments to support R&D for low-emission technologies at early stages of development. Governments and multilateral development banks should play key roles.

Third, we must offset, because the most likely outlook is that beyond what these approaches can deliver, we will still produce some billions of tonnes of emissions by mid-century. These will have to be balanced by removals to achieve net zero. Even if net zero is achieved by 2050, we will still need negative emissions after that to limit temperature rises.

The same market-based policies to drive emissions reductions can deliver CO2 removals. In their absence, removals can be paid for by governments. As an example, the Australian government established a fund to pay directly for offsetting credits (Australian Carbon Credit Units) created by emissions reductions and removals. The fund, which has a budget of $2.55 billion (US$1.92 billion), is on-track to reduce emissions by about 11 million tonnes in 2021, with an average contract price well under $20 (US$14.95) per tonne.

Carbon pricing or government payments are not the only way to deliver removals. Companies can undertake voluntary activity to meet their own net-zero objectives. The cost of voluntary offsetting varies widely across the world. Companies can find offsets for as little as US$1.30 per tonne; those choosing Australian government-accredited units are fetching spot prices above US$20 per tonne.

Global trading in offsetting credits could grow quickly in a world increasingly connected through common objectives and where carbon border adjustment mechanisms level the playing field.

These prices are projected to increase considerably in the future as more companies make such commitments, and demand could increase even more substantially if international action, voluntary or otherwise, makes offsetting credits with well-documented integrity an attractive proposition. Global trading in offsetting credits could grow quickly in a world increasingly connected through common objectives and where carbon border adjustment mechanisms level the playing field.

While there are many different sources of emissions across multiple sectors, there is only a small number of removal activities. The key ones are planting trees, putting carbon back into the soils, and directly removing CO2 from the atmosphere and burying it. The potential for such removals and their integrity as “real” removal is subject to debate, partly because the technologies and their measurement and verification are relatively immature, and also because climate change itself threatens the permanence of carbon stored in trees or soil. Much research and development are needed across many areas of reduction and removal technologies.

Conclusion

Current numbers demonstrate why a net-zero framework is needed, but also show that it is unlikely that direct funding from governments and voluntary funding from companies will be enough to deliver the emissions reductions and removals that balance to zero. The scale and pace of change is daunting but necessary. Net zero will be achieved in three decades if driven by clear policies, supported by technology development, and delivered through massive finance mobilisation.

The global community is mobilising around the objective of net zero by mid-century. Actions taken now to deliver cost-effective emissions reductions, drive down the cost of low- and zero-emission technologies, and support the case for greenhouse gas removals will determine whether that target can be achieved and the existential threat to humanity, defused. 

Tony Wood

Energy and Climate Change Program Director
Tony has been Director of the Energy Program since 2011 after 14 years working at Origin Energy in senior executive roles. From 2009 to 2014 he was also Program Director of Clean Energy Projects at the Clinton Foundation, advising governments in the Asia-Pacific region on effective deployment of large-scale, low-emission energy technologies.

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