Climate Solutions Series: Deep Decarbonization Pathways

THE ISSUE

This brief is the first in a series on achieving net-zero global greenhouse gas emissions by 2050. The CSIS Energy Security and Climate Change Program is hosting six events that will be followed by resource briefs related to each event. For more information on the series, see our website.

THE CHALLENGE

Reducing emissions to lessen the long-term impacts of a warming climate has been a shared objective of the international community for decades. To date, progress toward this goal has not kept pace with pathways necessary to deliver a stabilized climate by the end of the century. The result is that the emissions pathways necessary to achieve this target relative to current activity are necessarily steeper and the energy and land-use system changes required are more abrupt. The current scientific consensus indicates that to stabilize the climate and prevent the most catastrophic effects of climate change, we must reduce greenhouse gas (GHG) emissions to net-zero by or soon after 2050.^1,2 In 2010, GHG emissions reached 49 gigatons of carbon dioxide (CO₂)-equivalent per year. To reach net-zero, the world must reduce emissions through a combination of replacing GHG-emitting resources with zero-emissions sources and capturing emissions from the remaining sources that cannot be replaced. This resource brief explores how to understand the pathways to net-zero emissions and some of the ways to achieve this goal.

Research has shown that there are numerous pathways to net-zero emissions, ranging from significant cuts in fossil fuel consumption and major behavior changes with little reliance on “negative emissions” (removing CO₂ from the atmosphere) to smaller structural changes with a heavy reliance on new technologies to reduce carbon from point sources and the atmosphere. The shared socioeconomic pathways (SSPs), created by international researchers, represent five distinct pathways with different combinations of behavior and technology that represent possible futures of development for the world.³ These are of course not the only possible pathways, but they represent five general typologies: sustainability, middle of the road, regional rivalry, inequality, and fossil-fueled development. Integrated assessment models (IAMs) can use these development pathways as inputs to understand their impacts on energy use and emissions. When combined with GHG emissions reduction goals, IAMs can help researchers understand what the world needs to do to achieve net-zero emissions when facing different barriers to mitigation and adaptation.

Energy and climate models can generally be divided into two categories: forecasting and backcasting. Forecasting takes the current reality, factors in assumptions about future developments in everything from economic growth to technological change and sometimes policy development, and creates a trajectory for outputs, which are usually annual GHG emissions or the fuel mix that meets a given level of energy demand. IAMs can be classified as forecasting models because they do not predetermine an endpoint. Other models, however, can start from a net-zero goal and determine the least-cost pathway to reach that level of emissions relative to our starting position today. This is an example of backcasting, where assumptions about development are useful inputs but are not determinant of the level of emissions.

The Intergovernmental Panel on Climate Change’s 2018 Special Report on Global Warming of 1.5 °C, using the SSPs, explored pathways to hold global temperature rise to 1.5 degrees Celsius, which necessitates reaching net-zero GHG emissions around 2050.⁴ The report concludes that achieving this goal requires deep emissions reductions and broad transformations of all sectors of the global economy.

When considering a global goal of reducing emissions to net-zero, it is important to acknowledge that different countries are starting from different places—different economies, gross domestic product (GDP) levels, resource bases, fuel mixes, and other relevant inputs. Their pathways will then necessarily be different as well. A country like Singapore, for example, which has few natural resources and relies largely on imported energy,⁵ faces a different path than Indonesia, which has abundant oil, gas, and coal resources.⁶ Further, a high-income economy like the United States is likely to face a different path than a low-income economy like Burkina Faso. Overcoming the various challenges faced by different countries will require greater collaboration among nations to ensure we meet our collective goals in an efficient and equitable way.

GETTING FROM HERE TO THERE

TECHNOLOGY

While there is a significant amount of research on decarbonization pathways to hold global temperature rise below 2 degrees Celsius, there is comparatively little global research on the technical feasibility and economic costs of achieving net-zero emissions by 2050. While pathways will differ from country to country and from analysis to analysis, the fundamental building blocks of decarbonization available to each country will be similar. An organization that has conducted this research for the United States is the Deep Decarbonization Pathways Project (DDPP), in partnership with Evolved Energy Research (EER), a consulting firm focused on the energy transition.

The DDPP/EER team identifies the four pillars of a net- zero system: electricity decarbonization, energy efficiency, electrification, and carbon capture. Each pillar complements the others and efforts must be made in all four to efficiently reach a net-zero economy. By 2050, their research shows the most cost-effective pathway for the United States to reach net-zero emissions requires the United States to reduce electric power sector emissions per capita by 95 percent while reducing per-capita final energy demand by 40 percent through energy efficiency improvements. At the same time, electricity’s share of final energy demand should increase from 20 percent to 60 percent of final energy demand and the country should be capturing 400 million tons of CO₂ per year by 2050. The basic idea is that the electric power systems must decarbonize, energy production and consumption must become more efficient, the economy must more deeply electrify, and the CO₂ from the hard-to- electrify portions of the energy systems must be captured.

DDPP/EER research shows that the United States can reach net-zero emissions at a negligible impact to GDP, with a net cost of 0.4 percent of GDP in 2050, because most of the increased spending on new technologies is offset by decreased spending on fossil fuel development and consumption. An important caveat is that this study sought net-zero CO₂ emissions, not all GHGs. CO₂ makes up about 82 percent of U.S. GHG emissions,⁷ but the details of the pathway may be different if accounting for the other 18 percent of GHG emissions. Another important caveat is that this study backcasted a goal of reaching net-zero emissions by 2050. One can assume that transitioning more quickly would come with higher costs and be more difficult to achieve. It is also worth noting that the estimated GDP impact from deep decarbonization has improved over the last several years as technology costs have dropped.⁸

DDPP/EER research shows that the United States can reach net-zero emissions at a negligible impact to GDP, with a net cost of 0.4 percent of GDP in 2050.

In addition to the lowest-cost pathway to carbon neutrality, alternative scenarios must be run to understand how the pathways might look different under various constraints, such as unexpectedly high or low prices for fossil fuels, a slower or faster rate of cost declines for zero-carbon energy sources, or a mandate for 100 percent of primary energy (not just electricity) to come from renewable energy (as opposed to zero-carbon energy). These scenarios require different technologies, produce different pathways, and impose different costs. For example, requiring all primary energy to come from renewables would require a larger buildout of renewables and increase overall costs. Delaying electrification would also increase costs, as would a scenario in which available land was constrained.

It is important to note that these pathways assume energy services will still be met—this does not require societies to become accustomed to frequent blackouts or suffer from a lower standard of living. A pathway that would require sacrifices such as these would look different and would be particularly unfair to countries that are trying to provide services to their citizens and increase their GDP from relatively low levels of standard of living. Achieving net- zero GHG emissions while maintaining an acceptable level of energy services requires the appropriate technology and enabling policy.

The overarching question that remains is whether we have all the technology we will need to achieve net-zero emissions in 2050. In some sectors, several zero-carbon options are readily available and at or near cost parity with carbon-emitting sources. In the power sector, for example, there are clear—albeit challenging—pathways to net-zero emissions using a combination of renewable energy, nuclear energy, energy storage, and carbon capture and sequestration.⁹ In harder-to-abate sectors such as aviation or the manufacturing of cement or steel, technology options may exist now but require significant policy action to reduce costs and increase scale.¹⁰ The deployment of these technologies must also be paired with demand management and process changes including a move to a circular economy in manufacturing, for example.

POLICY

Policy plays an important role in deep decarbonization scenarios because while low-carbon technologies are becoming more cost-competitive, the scope and pace of low carbon energy deployment necessary to reach deep decarbonization is much faster than the normal investment cycle and capital replacement rate. Public policy happens at multiple levels of government, from the local level to the international level. In climate policy, there are many opportunities for governments at every level to make an impact. Below are examples of the major policy levers for decarbonizing the global economy. These are all policies that have been used around the world, but not at the scale that is necessary to meaningfully decarbonize.

The scope and pace of low carbon energy deployment necessary to reach deep decarbonization is much faster than the normal investment cycle and capital replacement rate.

GHG targets: GHG targets are overarching goals—they set the target for emissions, not the pathway to get there. GHG targets are usually set for around 2050 and will sometimes have incremental goals in the intervening years. GHG targets can be set at any level of government. In the Paris Agreement in 2015, 197 countries set national-level targets in the interest of limiting global temperature rise to 2 degrees Celsius above preindustrial levels. Although these original goals were not sufficient to meet the 2-degree target, let alone the more recently established 1.5-degree target, countries are expected to tighten their goals over time.¹¹ In September 2019, the United Nations announced that over 60 countries had goals of reaching net-zero emissions by 2050.12 Many subnational governments, including states, provinces, and cities, have set their own GHG reduction targets. In December 2019, the United Nations announced that 73 countries and 398 cities had set or were developing plans to reach net-zero emissions by 2050.¹³ Net-zero goals at the state level are not yet common, but the U.S. states of California, Hawaii, and New York have set these goals, as have the Australian states of New South Wales, Queensland, and Victoria.¹⁴

Carbon pricing: A price on carbon emissions is intended to internalize the external costs imposed on society by burning carbon. From a policy perspective, putting a price on carbon is intended to send market signals for capital to shift away from carbon-intensive sources and toward low- or zero- carbon sources.

The two major types of carbon pricing are a carbon tax and an emissions trading system. A carbon tax is levied on the extraction of carbon, ensuring that the social costs imposed by CO₂ emissions are factored into the private costs of resource extraction and consumption. As of November 2019, 29 carbon taxes exist around the world and another 4 are scheduled to be implemented or are under consideration.¹⁵ An emissions trading system most frequently takes the form of a cap-and-trade program, which imposes a cap on CO₂ emissions and auctions or distributes allowances to emit CO₂ up to the cap. Firms can buy and sell carbon allowances so that levels of emissions can vary from company to company while total emissions remain under the cap. As of November 2019, 27 cap-and-trade systems exist around the world and another 19 are scheduled to be implemented or are under consideration.¹⁶ While explicit carbon prices are relatively rare, various energy taxes paid by carbon-intensive producers can act as implicit carbon prices when they are not paid by zero-carbon producers.

There are potentially negative effects of carbon pricing that should be mitigated—chiefly, increased costs from companies passing on a tax or compliance costs to consumers and the risk of “carbon leakage,” or businesses relocating to other countries without carbon prices. Many carbon tax plans attempt to mitigate the higher consumer costs by using the revenue collected to offset burdens. There are many possible ways to distribute revenue, but proposals frequently include returning the revenue as an annual dividend to taxpayers¹⁷ and reducing other taxes to offset the increases.¹⁸ A 2017 survey¹⁹ suggested the most popular revenue use among Americans was to spend it on other emissions reduction strategies, but it is unclear that the benefits would be equitably distributed—consumer tax incentives may accrue to upper-income households, for example.²⁰

To combat leakage, the European Union is considering instituting a border carbon adjustment, which levies a tax on carbon-intensive imports from countries without carbon prices—an effort to ensure that the carbon intensity of products is priced the same regardless of origin and to eliminate the benefit companies may gain from relocating to other countries.²¹ Some presidential candidates in the United States’ 2020 election cycle have also proposed this as a companion to potential future carbon pricing legislation.

Innovation policies: Innovation is an important part of any climate strategy, as technology is central to decarbonization. The innovation ecosystem encompasses a chain of activities from basic research into materials through their incorporation into technologies, such as wind turbines and solar cells, through commercialization and deployment of these technologies to reduce emissions. Innovation is critical to introducing new methods for decarbonization by reducing the costs of existing technologies, developing new technologies, building markets, and demonstrating technology potential. Spurring innovation typically involves public spending on research, development, demonstration, and deployment of new technologies or improvements on existing technologies. Countries often have different strengths and weaknesses when it comes to innovation, with research and development spending in countries like the United States, China, the European Union, and Japan far outpacing that of other countries. That being said, efforts to internationalize the benefits of clean energy technology innovation exist across a range of technologies and regions.

Sales mandates: Sales mandates require energy providers to ensure a certain percentage of the energy they sell comes from a particular source. This is a common policy preference at the state level in the United States, where 29 states and Washington, D.C., require a certain amount of electricity sales to come from renewable energy (a policy known as a Renewable Portfolio Standard, or RPS).²² Many economists regard these policies as imperfect because they do not necessarily distribute costs and benefits in the most efficient way.²³ However, RPS policies tend to be more politically palatable than carbon pricing policies,²⁴ and there has been some research that indicates that under some circumstances, an RPS-like policy could be as efficient as a carbon price.²⁵ While the RPS is not as common outside the United States, some examples exist in other countries. Australia, China, Mexico, and South Korea have all implemented some version of an RPS, and the government of the Philippines has drafted an RPS plan that may be implemented in the future.²⁶

These examples cover only electric power, but sales mandates of energy products are not limited to this sector. Several countries have mandates for blending a certain percentage of biofuels into liquid fuels, for example. As of 2019, 40 national or state-level jurisdictions around the world had biodiesel mandates, 49 had ethanol mandates, and 14 had unspecified or overall biofuel blending mandates.²⁷ It is worth noting that these mandates are not necessarily imposed with climate goals in mind—they are often intended to support domestic agricultural producers such as corn farmers in the United States or palm oil producers in Indonesia.

Sales mandates may also take the form of efficiency standards, requiring the sale of energy-efficient appliances or vehicles, or less stringent labeling programs that require manufacturers to provide information to consumers about the efficiency of their products. For example, many countries institute fuel efficiency standards or CO₂ emissions standards for vehicles, which either directly limit CO₂ emissions or impose a certain standard for the amount of fuel consumed per unit of distance, which typically is achieved the same way.²⁸ Over 80 countries have instituted energy efficiency standards or labeling programs, and a 2015 analysis from the International Energy Agency found the benefits outweighed the costs at a ratio of 3:1.²⁹

Incentives: A popular type of policy for encouraging decarbonization is offering incentives to producers and consumers. These incentives are aimed at deploying preferred energy technologies by offering some form of compensation. Incentives to project developers and investors typically include tax credits or cash rebates that make deploying clean energy technologies more attractive. Feed-in tariffs, which guarantee a price to a developer for a set amount of time, are common around the world, although many countries are shifting from administratively set tariff levels to competitive auctions to identify the least- cost projects. In 2018, 111 countries, states, or provinces had feed-in tariffs and 48 countries held renewable energy auctions.³⁰ Governments also frequently offer incentives to manufacturers to support domestic industries, grow their markets, and develop a competitive advantage. China has offered these incentives throughout the solar value chain,³¹ and some U.S. states have offered these incentives to battery manufacturers in recent years.³²

Consumer incentives are common, with various levels of government frequently offering subsidies to customers to lower the price of electric vehicles, customer-sited solar generation, or other zero-carbon options. These also usually take the form of income tax credits or cash rebates, and consumers may be able to take both federal and subnational incentives to increase their benefit.

Bans/restrictions: Another type of decarbonization policy is a ban on sales of a particular product, which could be a primary energy source or a product that uses energy like the internal combustion engine (ICE) vehicle.³³ These bans are more controversial than other policies because they are more restrictive and necessitate a stronger role for the government, but proponents argue they are necessary to fight pollution and climate change.³⁴ Several countries have announced intentions to phase out ICE vehicle sales, although only France has institutionalized it in law as of February 2020.³⁵ Canada’s British Columbia³⁶ and China’s Hainan province³⁷ have done so as well (although the law in Hainan allows for plug-in hybrids, so it does not completely ban combustion engines). These declarations still carry weight if their governments remain committed to them when the time comes. The United Kingdom, for example, has announced a policy to stop all sales of ICE vehicles in the country by 2035.³⁸ Regulators in California have suggested they may consider a ban on ICE vehicle sales in the future³⁹ and lawmakers have introduced bills to do the same, but no regulatory action has been taken and bills in the legislature have failed.⁴⁰ A bill in the Washington legislature to ban ICE vehicle sales by 2030 ran out of time to be considered in 2020.41 In 2017, 35 cities signed a pledge to phase out ICE vehicles from their streets by 2030.⁴²

Production bans are another version of this supply-side restriction, which would outlaw the production of an energy source—often coal, oil, or gas. These bans are currently hypothetical but could be seen in the future. Many environmental groups have called for ending the practice of hydraulic fracturing,⁴³ a controversial technique for extracting oil and gas from shale rock, and some have called for full-scale bans on the extraction of all fossil fuels.⁴⁴ Some coastal U.S. states have moved to ban offshore drilling in state waters, but the motivations for those bans are typically concerns about local pollution rather than climate impacts.

THE ROLE OF PRIVATE SECTOR ENGAGEMENT

The energy sector is made up of different actors, including public and private sector groups that invest in and operate energy infrastructure and systems within the confines of the policy and regulatory environments described above. Although the structure of each country’s energy sector varies, the private sector plays at least some role in many countries. In many places, the private sector’s role in deploying technologies in the production and consumption of energy is clear. However, engagement with other actors is crucial, especially in the context of the energy transition necessary to bring about deep decarbonization, and both public-private partnerships and engagement with nongovernment organizations and other businesses engaged in both energy supply and energy demand are essential.

Both the individual technologies and the integrated system of technologies can be relatively novel and need to be demonstrated for the purposes of learning and achieving cost-reductions, and then they need to be deployed more broadly to build support for a given technological pathway (among regulators, investors, politicians, and local communities). Public-private partnerships can be useful architectures in which to test and deploy these innovative technology solutions. One of the values of public-private partnerships is that companies and governments can work together to advance solutions that benefit the public good even if they are not economically optimal from a business perspective alone. Beyond just demonstrating new technologies, public-private partnerships can work to build market share and create markets for new technologies as their value is proven and can pool public and private finance to defray the costs of decarbonization projects.⁴⁵

Engagement with other actors is crucial, especially in the context of the energy transition necessary to bring about deep decarbonization.

These partnerships are not always between a government and a nongovernment entity—for example, the dominant energy investor in many countries is a state-owned enterprise that carries out normal investment as well as more experimental investment and operations on behalf of the government. Sometimes private sector entities forego a government partner and simply take on demonstration or pilot projects for the purposes of learning more about an emerging technology or business model.⁴⁶ It is important to recognize that these partnerships, demonstration projects, and emerging investment and business strategies help companies and governments figure out how to deploy the technological solutions thus far only modeled in deep decarbonization modeling exercises. These projects often take time to evolve and produce enough reliable learning to inform future investment strategies, but they are an important part of implementing deep decarbonization solutions at nearly every level of government.

Action by private sector entities, especially the large consumers of energy, can be catalytic to help build markets and provide a signal of demand as well. One example of this is large energy consumers procuring renewable energy for their operations. This is often a business consideration, but it simultaneously provides a social benefit by signaling new demand for renewable energy. Corporate renewable energy purchasing is often an independent consideration, but efforts can be coordinated to aggregate demand as well. In 2019, the RE100, a business coalition organized by international nonprofit groups The Climate Group and CDP, counted 221 member companies who committed to buying renewable energy to cover 100 percent of their annual electricity use.⁴⁷ If the RE100 companies meet that goal by 2030, it could help fund an additional 105 gigawatts of wind and solar capacity around the world.

CONCLUSION

Getting to net-zero emissions by 2050 requires a combination of technology and policy, and the pathway can take many forms. These pathways are intended to serve not as prescriptions for action but as exercises for considering how different decisions under constraints can lead to different outcomes. This brief provided several building blocks that governments are using or are considering to construct these pathways, but the scale of current policies is insufficient to drive decarbonization. Future briefs in this series will explore individual economic sectors more thoroughly, delving into the technology and policy options available to governments looking to decarbonize.

FURTHER READING

The CSIS Energy Security and Climate Change Program held an event on deep decarbonization pathways on January 23, 2020. Watch an archived version of the discussion on our website.

The Intergovernmental Panel on Climate Change’s Special Report on Global Warming of 1.5 °C provides the scientific basis for a 1.5-degree Celsius warming limit that necessitates net-zero GHG emissions around 2050.

The California-based think tank Energy Innovation has developed a Policy Solutions simulator that allows users to explore policy pathways to reducing emissions.

The World Bank’s Carbon Pricing Dashboard provides information on carbon pricing initiatives implemented or planned, including the program design, scope, and revenue generated.

Stephen Naimoli is a research associate with the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Sarah Ladislaw is senior vice president and director of the CSIS Energy Security and Climate Change Program.

The authors would like to thank Nikos Tsafos for his input on this brief and Jim Williams , Ryan Jones , Fiona Clouder , and Bruno Sarda for participating in the event that informed this brief.

This brief is made possible by support from JPMorgan Chase & Co.

CSIS Briefs are produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2020 by the Center for Strategic and International Studies. All rights reserved.

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