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The Path to Decarbonization: Transforming the Global Economy by 2050

C H A R L O T T E S V I L L E , V A | W A S H I N G T O N , D . C . | S A N F R A N C I S C O , C A | S H A N G H A I , C H I N A

Michael LenoxTayloe Murphy Professor of Business

University of Virginia

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Abraham Gesner

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Abraham Gesner

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“This process of Creative Destruction is the essential fact about capitalism.”

- Joseph Schumpeter. Capitalism, Socialism, and Democracy (1942): p.83

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O U R B A S I C A R G U M E N T

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• Current corporate sustainable efforts are wholly insufficient

• Sustainable, disruptive innovation is needed on a massive scale

• Innovation requires commercial viability• Business and markets are critical players

in advancing innovation• Entrepreneurs are often the disruptors• Innovation emerges out of the broader

socio-economic system

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O U R C O N C E P T U A L F R A M E W O R K

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1010

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14Source: Mission 2020 (2017)

The (Potential) Path to Limiting Warming to 1.5 C

Net

Em

issi

ons

(Gt o

f CO

2e)

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F O R T H C O M I N G W O R K

WHAT IS THE LIKELIHOOD OF ACHIEVING “DECARBONIZATION” BY 2050?

WHAT LEVERS MAY BEST BE PULLED TO INCREASE THIS LIKELIHOOD?

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Michael LenoxBecky Duff

The Path to Decarbonization: Transforming the Global Economy

by 2050

Stanford U Press

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GLOBAL GHG EMISSIONS BY SECTOR

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DECARBONIZING THE GLOBAL ECONOMY BY 2050

Battery and/or hydrogen fuel cell electric vehicles

Net-zero emissions from renewables, nuclear, hydro with smart grid and storage

Electrification of heating and cooking

Electrification where possible, innovation when needed, CCS when absolutely necessary

Diffusion of best land-use practices, methane capture, protein substitution, growth of carbon sinks

Renewable natural gas

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ENERGY

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OBSERVATION 1: RENEWABLES IMPROVING

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OBSERVATION 2: PRICES ARE FALLING

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OBSERVATION 2: PRICES ARE FALLING

Source: DOE 2016 Wind Technologies Market Report

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OBSERVATION 3: ADOPTION IS INCREASING

Source: DOE 2016 Wind Technologies Market Report

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OBSERVATION 3: ADOPTION IS INCREASING

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OBSERVATION 4: “STANDARDS” BATTLE

https://about.bnef.com/blog/bullard-tech-investments-powering-clean-energy/

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• Increase relative cost of fossil fuels

- Continue renewable subsidies (e.g. tax breaks)- Remove fossil fuel subsidies

- Price CO2 emissions (e.g. carbon tax, cap-trade)

- Aggressive RPS’s and other regulations

- Regulate fracking emissions

• Lower barriers to renewable adoption- Eliminate trade barriers for solar panels, materials

- Ease siting restrictions, subsidize communities

• Modernize electrical grid

- Advance storage/batteries

- Smart grid infrastructure investment

• Will the cost of renewables continue to come down?

- Scarcity of raw materials- Barriers to trade, tariffs

- Opposition to siting raising costs

• Will the grid evolve to deal with intermittency?

- Evolution of battery technology

- Investment in smart grid- Rise of distributed generation

• Will new discoveries increase supply and/or lower costs of fossil fuels?

CHALLENGES LEVERS

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HOW WILL A DISRUPTION IN ENERGY PLAYOUT?

• Wi th decreas ing cos ts o f so la r and ba t te r ies , renewab les cou ld soon be the c lea r l ow-cos t op t ion .

• We w i l l l i ke l y see a shakeou t among manu fac tu re rs and ins ta l l e rs o f renewab les as demand g rows .

• Foss i l fue l supp l ie rs , fac ing dec l i n ing demand and a g loba l g lu t , w i l l resor t i nc reas ing ly to “non-marke t ” s t ra teg ies .

• Tech compan ies w i l l acce le ra te push to d i s rup t beh ind the mete r, e .g . Goog le , Tes la , Amazon .

• Oppor tun i t i es fo r u t i l i t i es to be two-s ided marke t makers on a d i s t r i bu ted smar t g r id .

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3M Smart Gridhttp://solutions.3m.com/wps/portal/3M/en_EU/SmartGrid/EU-Smart-Grid/

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TRANSPORTATION

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OBSERVATION 1: TECHNOLOGY IMPROVING

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OBSERVATION 2: SALES INCREASING

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OBSERVATION 3: COMPETITION GROWING

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2014 2015 2016

Figure 11: Global EV Sales By Parent Company

Tesla Renault BMW BYDBAIC Fiat VW KiaFord Geely Chery ZoyteJAC j3 EV JMC E100 EV Kandi EV (K10 & K11) Zhidou D1/D2 EV

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OBSERVATION 4: STANDARDS BATTLE?

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• Subsidize R&D and scaling of battery technology

- Battery research “moonshot”- Local incentives for new manufacturing

• Invest in charging infrastructure

- Increase government funding

- Form industry consortium

• Increase relative cost of ICE’s

- Continue EV subsidies (e.g. tax breaks)

- Price CO2 emissions (e.g. carbon tax)

- Subsidize “early retirement” of ICE’s

• Will the cost of battery technology continue to come down?

- Growth of supply as demand increases

- Scarcity of raw materials

• Will charging infrastructure grow fast enough to address range anxiety?

- Lack of standardization

- Perception challenges

• How long will it take to get existing ICEs off the road?

• How we will address other forms of transportation such as airplanes?

CHALLENGES LEVERS

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HOW WILL A DISRUPTION IN AUTOS PLAYOUT?

• Ba t te ry, and hence EV, p r i ces w i l l con t inue to come down as p roduc t ion sca les w i th po ten t ia l pa r i t y i n the nex t few years

• Expec t fu r the r en t ry f rom bo th new ven tu res and d ive rs i f y ing incumbents – watch fo r tech compan ies en te r ing w i th AVs

• Globa l shakeou t may be acce le ra ted by cu r ren t recess ion

• Prepare fo r a ( l a rge?) number o f es tab l i shed au tomakers to fa i l• Lack of technical and business expertise in EV especially changing business models

• Fear of cannibalizing existing sales and earnings compounded by internal politics

• Ego and bureaucracy leading to a lack of nimbleness

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INDUSTRIALS

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OBSERVATION 1: FOUR SECTORS REPRESENT >70% OF INDUSTRIAL EMISSIONS

Iron/Steel

Lime

Cement

Petrochemical

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OBSERVATION 2: CARBON INTENSITY OF STEEL PRODUCTION DECREASING IN US

https://about.bnef.com/blog/bullard-tech-investments-powering-clean-energy/

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OBSERVATION 3: CHINA IS DRIVING EMISSIONS

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OBSERVATION 4: OTHER SECTORS EVEN HARDER TO DECARBONIZE

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• Advance a sector based technology policy

- Targeted R&D investment in clean technologies- Drive electrification powered with renewables

• Create demand for alternatives

- Promote LEED and other certifications

- Reform building codes

• Increase relative cost of fossil fuel emissions- Price CO2 emissions (e.g. carbon tax, cap-trade)

- (Necessary to make CCS economical)

• Steel: Can alternatives to BOF advance sufficiently to entirely replace BOF plants?- Material inputs (scrap steel) may be insufficient

to fully scale mini-mills powered by renewables- Other efforts to reduce, but not eliminate, GHG

emissions show promise but are not widespread• Cement: Can available “green” cements become

widespread commercially in time?

• Petrochemicals: Can commercially viable clean technology alternatives be innovated in time?

• Can carbon-free substitutes replace these emitting technologies?

CHALLENGES LEVERS

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AGRICULTURE

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OBSERVATION 1: DEMAND FOR FOOD, AND FOR PROTEIN-RICH FOODS, WILL INCREASE

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OBSERVATION 2: LIVESTOCK AND SOIL MANAGEMENT ARE >80% OF EMISSIONS

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OBSERVATION 2: LIVESTOCK AND SOIL MANAGEMENT ARE >80% OF EMISSIONS

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OBSERVATION 3: TECHNOLOGICAL SOLUTIONS ARE EMERGING (BUT SCALING DIFFICULT)

Clean MeatMethane Capture Probiotics & Genetic Engineering

Vertical Farms Smart & Precision FarmingGMOs

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OBSERVATION 4: CARBON SINKS COULD DRIVE NET NEGATIVE EMISSIONS

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• Diffuse best practices

- Increase public subsidies for better farming

- Leverage global supply chain to drive change

• Reduce food loss and waste

- Invest in refrigeration infrastructure

• Increase demand for sustainable alternatives

- Price GHG emissions (e.g. a “cow” tax)

- Regulate livestock consumption

• Increase carbon sinks

- Subsidize forest growth- Price CO2 sinks (e.g. cap-trade)

• Can we meet the food needs of a growing population without heavy reliance on nitrogen-based fertilizers?

- Conservation tillage, nutrient management, cover crops and crop rotation

- Smart/precision farming, GMOs, vertical farming

- Can we scale best practices globally given millions of farms and farmers?

• Can we reduce and/or eliminate the impact from livestock?

- Methane capture

- Priobotics, genetic breeding, clean meat

- Can we globally substitute for meat?

CHALLENGES LEVERS

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SOME FINAL THOUGHTS

• Tak ing C l ima te Change se r ious ly w i l l requ i re a concer ted e f fo r t to b r ing d i s rup t i ve change ac ross a number o f l a rge sec to rs .

• Wi l l requ i re a m ix o f pub l i c and p r i va te in te rven t ions to acce le ra ted cu r ren t techno logy t rends .

• Po l i cy leaders need to cons ide r a l l the leve rs in the i r too lk i t to he lp acce le ra te innova t ion and d i f fus ion o f sus ta inab le techno log ies .

• Bus inesses shou ld look fo r oppor tun i t i es to re fo rm marke ts and d r i ve new techno log ies , no t mere ly reduce emiss ions .

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https://www.theatlantic.com/technology/archive/2012/04/the-100-year-march-of-technology-in-1-graph/255573/

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BICC INITIATIVE

See Business Innovation and Climate Change Website: www.darden.virginia.edu/innovation-climate