With global consumption of oil, natural gas and coal hovering at 80 percent, a formidable amount of work remains to achieve the promised net-zero carbon emissions by 2050. Europe’s goal of slashing those emissions by at least 55 percent below 1990 levels by the end of this decade is among the more ambitious global targets.
To reach these objectives, a monumental transformation is required that goes well beyond the changes that have taking place so far. What will a net zero world look like, what disruptive technologies are likely to emerge and how are the various stakeholders – from policy makers to corporates and investors – tackling the challenge?
The planet in 2050
Much of what depends on non-renewable resources across all industries globally today will dramatically shift towards renewables and cleantech in less than three decades. If the world stays on target, as much as 90 percent of earth’s power will be derived from renewable sources by 2050, according to the International Energy Agency (IEA). Offshore wind, onshore wind and solar will continue to be deployed in size and rooftop solar PV panels will be installed on some 240 million households.
Transportation will decarbonise. In 2050, more than 86 percent of cars will be electric. Trucks – and perhaps even the first commercial aircrafts – will be powered by low-carbon or green hydrogen. This is generally accepted and perhaps even consensus. Less clear is how much of transportation will be autonomous and whether there will be technological breakthroughs that change travel patterns
Industrial process will likely undergo the biggest disruptions. Hard-to-abate sectors’ represent 22 percent of global carbon emissions (2019) and will require bespoke solutions and technological innovation. Imagine a world where renewables and low-carbon hydrogen produce green steel, green cement, battery metals and other materials are recycled with incredible efficiency creating a true circular economy.
To achieve these demanding objectives, in cleantech capital investment will be needed, according to at least one estimate. This means investing US$237 billion a year in solar PV, close to US$390 billion a year in on- and off-shore wind power, US$116 billion annually on hydrogen electrolysers and infrastructure, just to name a few estimates by the International Renewable Energy Agency (IRENA). The intergovernmental organization says that for every U.S. dollar invested in this transition, there will be a pay off of at least three dollars and as much as seven dollars.
In Europe, reaching net zero represents a US$5.3 trillion investment opportunity, according to a report by BloombergNEF, with $3.8 trillion in new-build power generation projects, like wind and solar, and US$1.5 trillion invested in the clean hydrogen production assets.
Beginning of a revolution
Disruptive technologies are already foreshadowing what is yet to come. Renewable penetration is progressing globally but also introducing more volatility in power prices, energy storage projects, whether in the form of batteries, hydrogen or compressed air are taking shape to address this volatility and balance the grid but will there be enough storage? Electrolyser manufacturing capacity is expanding and starting to introduce economies of scale but it’s still at a very small scale today. Policy frameworks and support mechanisms are being developed but far from mature.
To top it all, the scale of what is required to reach net zero is unparalleled and will test policy makers, financial markets, established players and disruptive technology leaders and society at large. And things may even accelerate from here. Russia’s invasion of Ukraine has demonstrated the need for energy independence and has prompted the EU to raise their 2030 energy transition target in an effort to decouple more quickly from Russian gas.
What this means for stakeholders
Aside from policy makers, three main groups play an interdependent role in driving this transition: large corporations, smaller companies and start-ups, and investors.
For large, established firms like energy majors, utilities or heavy industrial players, navigating the transition means setting net-zero emission targets, decarbonizing the business, and laying the groundwork for how they will operate as non-renewables diminish in prominence in the decades to come. It also means staking a claim on promising, low-carbon-related technologies and finding strategic partners who can help turn those goals into reality. Net zero targets have been set by senior management and VC investing has never been greater by these players. The next step is to balance decarbonisation with remaining competitive - or even better, turning decarbonisation into a competitive advantage.
It is simultaneously an opportunity for smaller companies – often seen as the true disruptors – to upend and remodel the sector. Apart from the technology and scale-up challenge, one of the biggest challenges founders face, however, may be funding. Deciding how much capital to raise, where it should be raised and when and at what valuation is really difficult, not least in a rising interest rate environment. Finding the right partners and advisors can make the difference between success and failure.
Electric vehicle startups, for example, have at times struggled amid intensifying competition from traditional automakers also launching their own EVs. Many have sought out strategic partners to survive. For those spending a large amount of capital but unable to find a partner with the financial resources to support them, it can be the end of the road. Even more established EV companies have had to contend with product and operational issues.
Financial investors are recognising the need for capital. However, too often, things do not quite fit in the right box. Venture capital funding may be too small for very large projects even if those projects or businesses still have VC characteristics. Others may be ready to commercialise but don’t have the strategic partner to validate the technology and thus raising concerns by growth equity investors. Innovation will be needed by financial investors and lenders. For now, they seem to be responding given the number of new energy transition funds being launched by some of the largest asset managers in the world.
The future is possible
It may be hard to fathom what the world will look like in 2050 or how such ground breaking change is possible. New hurdles will inevitably emerge over the course of the transformation ahead, including risks in security, disruptions in raw materials supply, price volatility, and policy barriers. It will require unprecedented collaboration and partnership between all parties to keep pace with the disruptions that lay ahead. But the opportunities on the horizon for investors and companies large and small are vast and extraordinary. History has consistently demonstrated what is possible when governments, businesses – and importantly, people – work together and rise to the challenge.
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