Discussion, Conclusions, and Policy Recommendations

Abstract

This section summarizes the main findings of all parts of the research, with priority given to the most important findings to avoid the repetition of previous chapters. The key findings for the industry, services, buildings, and transport sectors, including the 12 sub-sectors analyzed, are provided and discussed. Policy recommendations for each sector and recommendations for the actions for governments, industries, the real economy, and financial institutions are offered.

1 Background: Discussion of the Results with Academia, Industry, Government Agencies, and Financial Institutions

In this section, we focus on the outcomes and conclusions of qualitative research rather than on the quantitative results documented in previous chapters. The most important technical measures are highlighted for each sector, followed by policy recommendations. This section reflects extensive discussions and workshops with stakeholders from various industries and includes the recommendations of Teske et al. (2019). This chapter documents the key outcomes of two key research projects conducted between 2020 and late 2021:

• 1. The development of sectorial targets for industry and services with the Net-Zero Asset Owner Alliance (NZAOA), financed by the European Climate Foundation and the United Nations Principles for Responsible Investment

• 2. The development of the global and regional transport scenario conducted with the German Corporation for International Cooperation GmbH (GIZ) and the Transformative Urban Mobility Initiative (TUMI)

2 Conclusion: High-Level Summary

To comply with the Paris Climate Agreement and limit the global mean temperature rise to +1.5 °C, rapid decarbonization of the energy sector with currently available technologies is necessary and is possible.

However, to achieve the transformation to a fully renewable energy supply, all available efficiency potentials must be combined to reduce the total demand. To reach Net Zero by 2050, the complete phase out of fossil fuels for all combustion processes is essential.

For the industry sector, the transition from fossil-fuel-based process heat to renewable energy or electrical systems is the single most important measure. The further reduction of non-energy-related process emissions—mainly from cement and steel manufacture—by altering or optimizing manufacturing processes is also essential. The remaining process emissions might be compensated by natural carbon sinks, so the industry sector must actively support the service sector in terms of soil regeneration and reforestation measures.

For the service sector, especially agriculture and forestry, reducing GHG emissions must clearly involve reducing the greenhouse gas (GHG) emissions arising from land-use changes. Increasing yield efficiency to avoid the further expansion of agricultural land at the expense of forests and other important ecosystems is key. However, feeding the growing world population without increasing the area committed to agriculture will require more than just an increase in technical efficiency. Moreover, there seems to be no alternative to reducing the consumption of meat and dairy products.

The forestry sector is the single most important sector for the implementation of nature-based carbon sinks. Deforestation must cease immediately. Reforestation with native trees and plants that are typical of specific regions and climate zones must replace the forest areas that have been lost since 1990.

To reduce the demand of the transport sector, a shift from resource-intensive air and road transport to more-efficient and electrified means of transport is required, together with an overall reduction in transport activity, especially in high-income countries. Phasing out the production of combustion engines for passenger cars by 2030 and introducing synthetic fuels for long-distance freight transport are essential elements for the future transportation sector. Even with this ambitious goal, the full decarbonization of the road transport sector will not be achieved before 2050, because cars are used, on average, for 15–20 years. There is also significant potential for efficiency gains in shipping and aviation. However, due to the foreseeable further growth in traffic volume and the lack of alternatives, the large-scale use of synthetic fuels from renewable electricity will also be necessary for these modes of transport. Since not all regions will be able to produce this with domestic resources at reasonable costs, a global trade of these new energy sources must be established.

The decarbonization of the buildings sector will require a significant reduction in the energy demand for climatization—heating and cooling—per square metre. The key result of our research is that the global energy demand for buildings can be halved with currently available technologies. The utilization of this efficiency potential will require high renovation rates and changed building codes for new constructions. The widespread use of heat pumps and heat grids is an important element on the supply side. In some areas, however, the supply of renewable gases can substitute today’s natural gas consumption with a long-term perspective, especially where there is an industrial gas demand. The conversion of today’s gas networks and the local/regional availability of resources for the production of green gases play a decisive role here.

Significant electrification across all sectors before 2030—especially for heating, to process heat, and to replace combustion engines in the transport sector—is the decisive and most urgent step. Increased electrification will require sector coupling, demand-side management, and multiple forms of storage (for heat and power), including hydrogen and synthetic fuels. Accelerating the implementation of renewable heat technologies is equally important because half the global energy supply must derive from thermal processes by 2050.

The transition of the global energy sector will only be possible with significant policy changes and reforms in the energy market.

The complete restructuring of the energy and utilities sectors is required. The primary energy sector—the oil, gas, and coal industry—must wind down all fossil-fuel extraction and mining projects and move towards utility-scale renewable energy projects, such as offshore wind and the production of hydrogen and synthetic fuels.

Power utilities will play a key role in providing the rapidly increasing electricity demand, generated from renewable power. The nexus of the global energy transition will be the power grid. Replacing oil and gas with electricity means that power grids must transport most energy, instead of oil and gas pipelines.

Therefore, the expansion of power grid capacities is one of the most important and also most overlooked measures required. In addition, converting existing gas pipelines and using them for the long-range transport of hydrogen and synthetic methane can significantly reduce the infrastructural demands on the power system and increase efficiency.

According to the scenario, global transmission and distribution grids must transport at least three times more electricity by 2050 than in 2020. The upgrades and expansion of power grids must start immediately because infrastructure projects, such as new power lines, can take 10 years or more to implement. Conversions of existing gas pipelines will be possible first where industrial users need large quantities of hydrogen for decarbonized processes.

Limiting the global mean temperature rise to +1.5 °C cannot be achieved by the decarbonization of the energy sector alone. As stated earlier, it will also require significant changes in land use, including the rapid phase out of deforestation and significant reforestation. These measures are not alternative options to the decarbonization of the energy sector but must be implemented in parallel. If governments fail to act and mitigation is delayed, we face the serious risk of exceeding the carbon budget. In the One Earth Climate Model (OECM) 1.5 °C pathway, the land-use sequestration pathways complement very ambitious energy-mitigation pathways and should therefore be regarded as necessary to reduce the CO₂ concentrations that have arisen from the overly high emissions in the past and not as compensatory measures that can be extended indefinitely into the future.

3 Industry Sector

Policies to achieve the implementation of new highly efficient technologies and to replace fossil-fuel use in industry must be defined region-wide or even on the global level and will require stringent and regulated implementation. Economic incentives, national initiatives, and voluntary agreements with branches of industry will probably not, by themselves, achieve rapid technological change. Concrete standards and requirements must be defined in great detail, covering as far as possible all technologies and their areas of application. The systematic implementation of already-identified best-available technologies should begin immediately.

Mandatory energy management systems must be introduced to identify efficiency potentials and to monitor efficiency gains. The sustainability features of process chains and material flows must also be considered when designing political measures. Particular attention must be paid to the material efficiency of both production processes and their products, because this can open up major energy efficiency potentials and reduce other environmental effects. Public procurement policies and guidelines will help to establish new markets and to introduce new, more-efficient products and opportunities. The effectiveness of policy interventions must be assessed by independent experts, and the further development of efficiency programs and measures will require ongoing co-ordination by independent executive agencies. The public provision of low-interest loans, investment risk management, and tax exemptions for energy-efficient technologies and processes will significantly support technological changes and incentivize the huge investments required. Knowledge transfer between sectors and countries can be achieved through networks initiated and co-ordinated by governments. Public funding for research and development activities with regard to technological innovation, low-carbon solutions, and their process integration will be vital to push the technological limits further. Innovative approaches to the realization of material cycles and recycling options, the recovery of industrial waste heat, and low-carbon raw materials, and process routes in industry must also be identified and implemented.

3.1 Steel Industry

There are two key policy recommendations for the steel industry:

• 1. The decarbonization of the thermal and electrical energy supplies must be supported until 2030.

• 2. The expansion of new production processes to decarbonize steel manufacturing must be supported, including for:

  • EAF processes

  • Hydrogen-based steel production

Although policies to support the transition towards a renewable energy supply are identical to those described for the energy and utilities sectors, support for mainstreaming steel production processes to reduce process emissions must be developed specifically for the regional steel industry.

Research and development grants are required, as well as product certification schemes, to financially encourage changes towards new production lines. Steel-processing industries, such as the automotive and construction sectors, require binding purchase quotas for CO₂-neutral steel. CO₂-intensive steel should gradually be made more expensive with a special ‘steel tax’, to further promote the production of ‘green steel’.

3.2 Cement Industry

Just as in the steel industry, the decarbonization of energy production for the cement industry has the highest priority in achieving short-term emission reductions. Reducing process emissions requires increased efficiency along all steps of the production line. However, to date, no processes are available for the production of emissions-free cement. Therefore, nature-based carbon sinks must be established to compensate for the residual process emissions.

The Global Cement and Concrete Association (GCCA 2020) published a 2050 road map that set a ‘long-term vision for the industry’ that covers the following topics:

• Emissions reductions in cement and concrete production

• Savings delivered by concrete during its lifetime

• Reduced demand by promoting design and different materials (e.g. wood)

• Material and construction efficiencies and improved standards

• Re-use of whole-concrete structures

• Designs for the disassembly and re-use of elements

3.3 Chemical Industry

The production of the main feedstocks for the chemical industry, such as ammonia, methanol, ethylene, and propylene, is almost entirely based on oil and gas but also on some biomass and coal. The refinery and production processes are very energy intensive. The production facilities are significantly different in each country and depend upon the company’s product range. Therefore, universal policy recommendations are not possible.

However, the decarbonization of the chemical industry must focus on the following key areas:

• Developing alternatives to fossil-based feedstock for the production of high-value chemicals, such as ethylene, propylene, benzene, toluene, and xylene

• Expansion of renewable-energy-based ammonia production

• Transition from coal- and gas-fuelled process heat generation to predominantly electrical systems

The electrification of process heat will significantly increase the electric load for the production side. Therefore, in the transition from fossil- to electricity-based process heat generation, upgrading the power grids must also be considered, and planning must involve the local power-grid operator.

4 Land-Use and Non-energy GHGs in the Service Sector

The key recommendations for the service sector focus on non-energy GHG emissions and especially the emissions associated with changes in land use (agriculture, forestry, and other land use, AFOLU). Although the transition to a renewable energy supply is a prerequisite for the decarbonization of the service sector, deforestation and other forms of land conversion must decline much more rapidly. Moreover, reductions in methane and nitrogen must also be achieved in the agriculture sector. Without nature-based solutions, the 1.5 °C limit will not be possible, even with a rapid decline in fossil-fuel emissions.

Four main natural sequestration pathways are utilized in the OECM, divided into temperate and tropical zones—reforestation, natural forest restoration, sustainable forest management, and cropland afforestation (trees in croplands):

• 1. Wild lands cover approximately 50% of the Earth’s terrestrial area and are vital to the world’s carbon cycle, sequestering up to one-quarter of anthropogenic carbon emissions and storing approximately 450 gigatonnes of solid carbon (Erb et al. 2018). Preserving these land and forest intact is key to maintaining our global carbon sinks, making the 1.5 °C limit possible.

• 2. Ending deforestation: Today, land-use changes account for more than 10% of global CO₂ emissions (approximately 4 GtCO₂ per year), resulting largely from the clearing of forests for agriculture or other forms of development. Rapidly phasing out the practice of deforestation will greatly increase the chance of achieving the 1.5 °C limit.

• 3. Large-scale reforestation: The most important sequestration measure identified is large-scale reforestation, particularly in the subtropics and tropics. Under the 1.5 °C model, 300 megahectares (Mha) of land area will be reforested in the tropics, and an additional 50 Mha will be reforested in temperate regions.

• 4. Natural restoration: The second most important pathway for carbon removal relies upon natural forest restoration or ‘rewilding’, increasing the carbon density within approximately 600 Mha of existing forests. Reduced logging and better forestry practices in managed forests will also contribute significantly to reducing total carbon removal.

Planting Trees on Croplands

Tree cropping—a strategy in which trees are planted within croplands—can significantly increase carbon storage on agricultural lands. The OECM estimates that planting trees on 400 Mha of cropland will achieve approximately 30 Gt of carbon removal by 2100.

The four sequestration pathways occur in all countries and regions, although we have excluded reforestation in the boreal forest zone because of the albedo effect.

All four sequestration pathways commence in 2020 but have different phase-in and phase-out rates, which also differ between the boreal/temperate and tropical/subtropical biomes.

• 1. Forest restoration: Boreal/temperate—full potential by 2035, saturation by 2065 (decline to zero around 2100). Tropical/subtropical—full potential by 2030, saturation by 2045 (decline to zero around 2100).

• 2. Reforestation: Boreal/temperate—full potential by 2045, saturation by 2075 (decline to zero around 2150). Tropical/subtropical—full potential by 2040, saturation by 2065 (decline to zero around 2120).

• 3. Sustainable use of forests: Boreal/temperate—full potential by 2040, saturation by 2070 (decline to zero around 2150). Tropical/subtropical—full potential by 2035, saturation by 2055 (decline to zero around 2100).

• 4. Agroforestry: Boreal/temperate—full potential by 2040, saturation by 2060 (decline to zero around 2080). Tropical/subtropical—full potential by 2030, saturation by 2050 (decline to zero around 2080).

5 Transport Sector

There are actionable measures in three key areas to decarbonize transport in line with the 1.5 °C target: avoiding or reducing the need to travel, shifting to more-efficient transport modes, and improving efficiency through vehicular technology. The implementation of these measure must take place until 2030 in order to reduce emissions sufficiently rapidly.

• 1. Phasing out of internal combustion engines by 2030: To achieve the global decarbonization of transport, it is essential to transition to electric mobility powered by renewable energy. To facilitate the shift to electric mobility, the phasing out of new vehicles (passenger cars, vans, 2–3 wheelers, city buses, etc.) with international combustion engines (ICE) by 2030 is vital. By setting targets, governments can send strong signals to markets and customers to adopt the new technology. Efficiency standards for all vehicle types, with an annual efficiency improvement target of 1%, should also be mandated.

• 2. Increasing walking and cycling to optimal levels of international leaders in sustainable mobility: The large-scale expansion of quality infrastructure for bicycles and walking is required to maintain and extend access to these activities around the globe, while curbing the increase in passenger transport. Compact regional and urban planning principles will support the greater uptake of active mobility. Under the 1.5 °C pathway, up to 50% of trips will be made by foot or cycling, as exemplified by international leaders in sustainable mobility, such as Amsterdam and Copenhagen.

• 3. Doubling the public transport capacity by 2030: Although public transport has seen massive reductions in use during the COVID-19 pandemic, it continues to play a key role as the backbone of urban and inter-urban mobility. To leverage its potential, the capacity of public transport must be doubled, with attention given to service quality and convenience to ensure its acceptance. The integration of shared mobility and ‘last mile’ transport services will support intermodality between public transport and individual mobility.

• 4. Almost full electrification of rail by 2030: Freight transported by trucks must be shifted to rail transport systems. The share of electric trains must increase, and all diesel locomotives must be phased out by 2050 across all regions. Therefore, the full electrification of rail transport (via overhead- or battery-powered electric trains) must be achieved.

• 5. Introduction of hydrogen and synthetic fuels before 2030 as a complementary solution for modes of transport and technologies that cannot be electrified such as shipping and aviation and to some extent long-distance freight transport by road.

6 Buildings Sector

The in-depth HEB analysis (Chap. 7) demonstrates the potential to reduce the energy demand in the buildings sector with state-of-the-art high-efficiency buildings, implemented worldwide. The findings of the HEB analysis show that with a greater proportion of high-efficiency renovations and construction, it will be possible to reduce the final thermal energy use globally in the building sector by more than half by 2060. For some regions, such as the EU and the Pacific OECD, it will even be possible to achieve net-zero status for the thermal energy demand. However, this pathway towards high-efficiency or net-zero emissions in the buildings sector is ambitious in its assumptions and requires strong policy support. On the contrary, if policy support to implement more high-efficiency buildings is not in place, then the total thermal energy demand of the building sector will increase significantly over coming decades. Furthermore, if the use of energy efficiency measures continues at the present rate, 67–80% of the final global thermal energy savings will be locked in by 2060 in the world building infrastructure. This lock-in effect in the buildings sector also means that if the present moderate energy performance levels become standard in new and/or retrofitted buildings, it will be almost impossible to further reduce thermal energy consumption in these buildings for many decades to come.

Therefore, to realize the immense potential of the buildings sector, strong and ambitious policies are required. The findings of our study are translated into the following policy recommendations:

• 1. The building energy demand can be harnessed by implementing the advanced retrofitting of existing and historical buildings in developed nations. To promote advanced retrofitting, ambitious building codes and standards must be introduced and effectively enforced. To effectively reinforce these advanced retrofitting strategies, positive incentives, such as subsidies or tax deductions, can be given to both developers and owners. If retrofitting is not performed at an advanced level, then the increased floor area means that the global energy demand will also increase. Furthermore, with the substantial carbon lock-in, the energy demand cannot be reduced substantially in subsequent years. This study shows that strict policies in building energy efficiency measures and their urgent implementation are even more important than an increased retrofitting rate in achieving low-energy building stock.

• 2. Most of the future thermal energy demand will come from developing nations, such as India. In developing regions, new building stock will play a dominant role in reducing the energy demand, so the construction of new energy-efficient buildings should follow a stringent building code that requires a high level of energy performance in all new construction. Building certification and labelling, technology transfer, training of building specialists, and financial incentives should also be considered to achieve adequate high-efficiency construction.

• 3. Together with stringent energy-efficient building codes and performance standards, behavioural and lifestyle changes will help to limit floor space growth, especially in urban areas. This will increase the efficiency of energy systems in buildings. Therefore, more education about low-carbon lifestyles must be provided.

• 4. Even with ambitious policy assumptions, the building sector will still consume substantial thermal energy globally, which may hinder the transition towards climate neutrality. Therefore, reducing the building energy demand must be accompanied by the promotion of building-integrated solar electric production. The findings of the nearly net-zero scenario show that in developed regions, it will be possible to achieve net-zero status by 2060. Therefore, positive incentives should be given for on-site building-integrated solar energy production.

7 Energy and Utilities Sector

The energy and utilities sectors may constitute separate categories for the financial sector, but for the energy sector, they are two sides of the same coin. The 1.5 °C pathway will lead to a 100% renewable electricity supply, with a significant share of variable power generation. The framework of the traditional electricity market has been developed for central suppliers operating dispatchable and limited dispatchable (base-load) thermal power plants. However, the electricity markets of the future will be dominated by variable generation, with no marginal or fuel costs. The power system will also require the build-up and economic operation of a combination of dispatch generation, storage, and other system services, the operation of which will be conditioned by renewable electricity feed-ins. For both reasons, a significantly different market framework is urgently required, in which the technologies can be operated economically and refinanced. Renewable electricity must be guaranteed priority access to the grid. Access to the exchange capacity available at any given moment should be fully transparent, and the transmission of renewable electricity must always have preference. Furthermore, the design of distribution and transmission networks, particularly for interconnections and transformer stations, should be guided by the objective of facilitating the integration of renewables and achieving a 100% renewable electricity system.

To establish fair and equal market conditions, the ownership of electrical grids should be completely disengaged from the ownership of power-generation and supply companies. To encourage new businesses, relevant grid data must be made available by the operators of transmission and distribution systems. This will require establishing communication standards and data protection guidelines for smart grids. Legislation to support and expand demand-side management is required to create new markets for the integration services for renewable electricity. Public funding for research and development is required to further develop and implement technologies that allow variable power integration, such as the smart-grid technology, virtual power stations, low-cost storage solutions, and responsive demand-side management. Finally, a policy framework that supports the electrification and sector coupling of the heating and transport sectors is urgently required to ensure a successful and cost-efficient transition process.

8 Policy Recommendations

The OECM is an integrated energy assessment tool for the development of science-based targets for all major global industries in a granularity. It includes the key performance indicators (KPIs) required to make informed investment decisions that will credibly align with the global net-zero objective in the short, medium, and long term. The key finding of our work on the OECM 1.5 °C cross-sectorial pathway is that it is still possible to remain with the 1.5 °C limit if governments, industries, and the financial sector act immediately. The technology required to decarbonize the energy supply with renewable energy is available, market ready, and in most cases, already cost competitive. The energy efficiency measures needed to reduce the energy demand have also been understood for years and can be introduced without delay. Finally, the finance industry—for instance, the Net-Zero Asset Owner Alliance—is committed to implementing carbon targets for its investment portfolios. However, policies are required to ensure that all measures are implemented in the rather short time frame required.

Implementing Short-Term Targets for 2025 and 2030

To implement the documented short-term targets for 2025 and 2030, the following actions are required:

Government Policies:

• 1. Immediate cessation of public and private investment in new oil, coal, and gas projects.

• 2. Implementation of carbon pricing with a reliable minimum CO₂ price, consistent with the underlying OECM emissions caps.

• 3. All OECD countries must phase out coal by 2030.

• 4. The automobile industry must phase out internal combustion engines for passenger cars by 2030.

• 5. Legally binding efficiency standards must be instituted for all electrical applications, vehicles, and buildings.

• 6. Renewable energy targets must be based on IPCC-carbon-budget-based 1.5 °C scenarios or detailed country-specific master plans.

• 7. Mandatory transparent forward-looking and historic disclosure of the most relevant KPIs: energy intensity, share of renewable energy supply, energy demand, carbon emissions, and carbon intensities per production unit.

• 8. A global phase out of all fossil-fuel subsidies by 2025.

• 9. Pursuing a nationally and internationally to globally integrated and coordinated policy with the aim of creating investment security and incentives for the necessary transformation processes

• 10. Conduct a comprehensive scientific analysis of feasible national pathways and formulate corresponding NDCs for 2025/2030 and beyond.

• 11. Establish global governance of the transformation of energy systems, including monitoring of the necessary political, social, economic, environmental, and legal requirements.

Actions Needed by Industry and Financial Institutions

• Industry:

  • 1.  Setting and implementing a climate strategy consistent with 1.5 °C no- or low-overshoot sector models.

  • 2.  Immediate cessation of investments in new oil, coal, and gas projects.

  • 3.  Utilities must rapidly upscale renewable electricity to provide logistical support for reducing Scope 2 emissions for all industries and services. This is a huge market opportunity for utilities.

  • 4.  Development of efficient technologies to implement electric mobility.

  • 5.  Mandatory transparent forward-looking and historic disclosure of the most relevant KPIs, such as carbon emissions, energy demand, and carbon intensities per production unit.

• Financial Institutions:

  • 1.  Setting and implementing decarbonization targets for investment, lending, and underwriting portfolios that are consistent with the 1.5 °C no- or low-overshoot sector models.

  • 2.  Cessation of investment in new oil, coal, and gas projects.

  • 3.  Ensured coal phase out in OECD countries by 2030 and in all regions between 2030 and 2040.

  • 4.  Scaled climate solution investments, especially in emerging economies.

  • 5.  Disclosure of:

    • Climate mitigation strategies

    • Short- and mid-term target setting

    • Target achievements

    • Progress of climate solution investments

    • Engagement outcomes