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November 15, 2021
Gary Hart & Gabriela Herculano
Halving Emissions by 2030 and the Relevance of 5 Key Solutions
To successfully navigate any complex journey, one needs to know both their starting point and destination with some precision. Having a good map to help you follow the key checkpoints along the way is a must and just as world maps themselves have evolved from limited, early, human-centric depictions to the comprehensive, hi-resolution masterpieces that help us navigate with great precision today, our limited and human-centric awareness of our impact on the environment seems to have led us on a journey that could wipe us off the map completely.
We need to get back on track and fast. In this article we take a look at where we are, the guidance that we have in place and how we may be able to improve our ‘map’ to help us traverse the terrain to reduce greenhouse gas (GHG) emissions and limit the negative impacts of climate change. Our tool to improve our navigation of these unchartered waters is Potential Avoided Emissions (PAE), inspired by the Avoided Emissions Framework developed by Dennis Pamlin, his team at the Research Institutes of Sweden (RISE) and partners, and one of the activities of Mission Innovation. We will explain why it’s the best tool to assess the impact of different climate change solutions and how it allows us to focus on products and services that preclude emissions from ever taking place.
Our Motivation, Starting Point and End Goal – Global Scale
Let’s start with the end in mind, 2015’s COP 21 in Paris was key in determining our desired destination, the resulting Paris Agreement came into force with the goal “to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels” and the world’s attention was drawn to our collective target. Since then, resources such as the IPCC’s 2018 ‘Special Report: Global Warming of 1.5°C’, NASA’s ‘A Degree of Concern: Why Global Temperatures Matter’ and Carbon Brief’s ‘The Impacts of Climate Change at 1.5°C, 2C and beyond’ have helped us to sharpen our focus by providing more clarity on our ‘why’ as we understand the differences between what a 1.5, 2°C or higher world might look like.
John Kerry, the US Special Presidential Envoy for Climate, declared COP26 "The starting line for the rest of the decade", and the week leading up to COP26 has seen the release of some key reports that help us understand where we are starting from and give us further motivation to get moving. Firstly, the World Meteorological Organizations (WMO) ‘State of the Global Climate 2021: WMO Provisional report’ which underscores that:
- The past seven years are on track to be the seven warmest on record.
- Global sea level rise accelerated to a new high in 2021, with continued ocean warming and ocean acidification.
- Greenhouse gas concentrations reached new highs in 2020.
Along with yet more concerning statistics around the state of glaciers, ice sheets, extreme weather events and the socio-economic and environmental consequences of these changes, the report lead WMO Secretary-General Prof. Petteri Taalas to comment that “At the current rate of increase in greenhouse gas concentrations, we will see a temperature increase by the end of this century far in excess of the Paris Agreement targets of 1.5 to 2 degrees Celsius above pre-industrial levels” and that “COP26 is a make-or-break opportunity to put us back on track.” This message was reinforced by United Nations Environmental Programme’s Emissions Gap Report 2021 which opened by reiterating the Intergovernmental Panel on Climate Change’s recent message that that we have a 50% chance of exceeding a 1.5°C temperature threshold within the next few decades. The report went on to highlight that the latest unconditional nationally determined contributions (NDCs) and announced pledges submitted by countries will only lower projected 2030 emissions by 7.5% compared to previous NDCs which will put us on course for 2.7°C of warming by the end of the century with a 66% chance. A reduction of 13 GtCO2e or 4x higher ambition is needed to get on track to 2°C and lower 2030 emissions by 30%, while 28 GtCO2e or 7x high ambition is needed to get on track to 1.5°C and lower 2030 emission by 55%. Inger Andersen, the Executive Director of the United Nations Environment Programme, closed her foreword on the report by conveying the urgency of the issue, saying “we have eight years to make the plans, put in place the policies, implement them and ultimately deliver the cuts. The clock is ticking loudly.” A message in a similar vein to the opening keynote from UK Prime Minister Boris Johnson as he welcomed world leaders to COP 26 with the stark warning that the world is “One minute to midnight” on climate change.
“At the current rate of increase in greenhouse gas concentrations, we will see a temperature increase by the end of this century far in excess of the Paris Agreement targets of 1.5 to 2 degrees Celsius above pre-industrial levels”
Secretary-General Prof. Petteri Taalas
Key Milestones – Sector and Solution Level
Now that we have thought about the problem at a global scale, begun to clarify our ‘why’, established where we are starting from and where we would like to get to, let’s take a look at our map and establish some key checkpoints for the journey so that we can break it down into more manageable chunks.
iClima Earth are big advocates of the work of Project Drawdown, a resource which “maps, measures, models, and describes the 100 most substantive solutions to global warming.” It was one of the key references that informed our choice of companies that generate revenue in line with the most relevant existing climate change mitigation solutions for our decarbonisation index and also influences the work of Exponential Roadmap, a report that “looks to approximately where the world needs to be in 2050 to limit global warming to a maximum of 1.5°C”, evaluates a range of solutions and their maximum potential for reducing and sequestering emissions and then “works backwards to estimate the journey that could take the economy to this destination by implementing the solutions focusing particularly on the first step to 2030.”
Exponential Roadmap is based around the Carbon Law Pathway (see box) which aims to halve emissions by 2030, then a further 50% by 2040 and a further 50% by 2050 to stay in line with the Paris Agreement. The report also adds further granularity to our ‘map’ by drawing our focus to that first key milestone, halving emissions by 2030, as it lays out a possible emissions reduction pathway to get there at a sector and solution level. It also illustrates what the assumed implementation of each solution might look like to reach those emissions reduction targets. For example, it states that solar PV must grow at a rate of 23% p.a. in order to reduce annual emissions by 4.71 GtCO2 in the 2020-30 period. This added granularity helps to provide a gauge against which we can measure our progress and ambitions.
Zooming in - Company Level
iClima’s sole focus has always been to find the companies that move us away from business as usual, higher-emission activities to the ones providing products and services that preclude emissions from taking place, helping to reduce the world’s emissions. A fundamental component of our approach is finding the companies with products and services that enable CO2e avoidance, and we quantify this number on an annual basis. We believe that this company level analysis can help to bring attention and capital to the most impactful climate change innovators and doers who will drive the rapid change that is so needed. This quantification of CO2e avoidance is already used by a number of companies to demonstrate the environmental benefits of their products and services and we believe that the metric should be more widely used in order to help to measure and forecast potential avoided emissions more accurately and in turn, inform our action on global and sectoral emission reductions.
Inspired by Exponential Roadmap, iClima saw value in trialling an extension our approach of quantifying company potential avoided emissions on an annual basis, to attempt to forecast the potential avoided emissions of 5 key solutions offered by companies in iClima’s Global Decarbonisation Enablers Index for the 2020-2030 period that represents the first milestone to halve global emissions. We believe that this bottom-up approach will add value by providing further detail to our ‘map’ that will help us understand the companies, solutions and sectors that will be most impactful in helping us reach our 2030 emissions reduction goal.
Exponential Roadmap Solution: Plant-based diet
Company from iClima’s Index: Beyond Meat
Solution Quantified: Plant-based Meat Alternatives Replacing Beef
Beyond Meat is well-known global plant-based meat substitute company that emphasizes that “By shifting from animal to plant-based meat, we can positively affect the planet, the environment, the climate and even ourselves.” In 2018 the company commissioned the University of Michigan to conduct a “cradle-to-distribution” life cycle assessment of the plant-based Beyond Burger (in which the main ingredient is peas) vs a typical US Beef burger. The study concluded that “the Beyond Burger generates 90% less greenhouse gas emissions, requires 46% less energy, has >99% less impact on water scarcity and 93% less impact on land use than a ¼ pound of U.S. beef.”
iClima then used this number along with estimates of Beyond Meat’s and the plant-based ‘meat’ market’s current and future sales to work out what potential avoided emissions may look like in the future. There are a number of assumptions used in making this estimate and improved transparency of data may help to improve our assumptions in the future. Key assumptions include, assuming that avoided emissions per unit of product remains constant out until 2030 and that all plant-based burgers replace beef burgers, Beyond Meat produce alternatives to a number of meats and vegetarians may also consume their products, however as Beyond Meat no longer publish data on the overall volume of their various products sold, this is difficult to estimate. We hope that demonstrating the value of our approach will lead to further collaboration and improved data transparency in the future.
The potential avoided emissions for Beyond Meat and overall US plant-based meat market were then compared to Exponential Roadmap’s target for emissions reductions from plant-based diets for the 2020-30 period and were found to be 0.08% and 0.8% of the target respectively. Although this number may seem relatively low, we should bear in mind that many other solutions may contribute to the emissions reduction goal for plant-based diets, with plant-based dairy, the Lancet diet and lab-grown meat some of the widely discussed impactful solutions. If it were just down to swapping out beef burgers for plant-based burgers alone, assuming all 7.9 billion people on earth were meat eaters, we could achieve Exponential Roadmap’s 2.18 GtCO2e emissions reduction target for 2030 by swapping out 2 beef burgers for plant-based burgers per person per month, of course in reality access to meat and dietary preferences mean that not everyone would be able to make such a switch. iClima hope to quantify more solutions within the plant-based diet category in the future in order to build up a clearer picture of their contribution towards Exponential Roadmap’s 2020-30 emissions reduction target, identify the companies and segments having impact and possibly even help inform personal dietary choices.
Exponential Roadmap Solution: Remote Working and Meeting
Company from iClima’s Index: Zoom Inc
Solution Quantified: Replacing Business Travel for Meetings with Telepresence
Unlike many of its users, Zoom has really taken off during the pandemic, from school children’s online lessons, adults working from home and families looking for face-to-face contact during the lockdowns, Zoom has become almost ubiquitous in many people’s lives. However, a real question remains around whether people’s lower-emission, reduced commuting and travel tendencies will continue as global restrictions ease.
Although Zoom do not publish information on the number of calls on their platform per year, their ESG page states: “We estimate that by enabling millions of users to work from home during the COVID-19 pandemic, our platform helped our customers reduce their CO2 emissions by more than 55 million metric tons in 2020 - roughly equal to taking 11 million cars off the road.” iClima contacted Zoom investor relations and found that this number related specifically to calls that replaced business travel. Under the assumption that these avoided emissions grow in line with the telepresence market itself, we estimated Zoom’s percentage of market share based on online search data and forecasted the avoided emissions from business meetings replaced by telepresence over the 2020-30 period for the company itself and for whole telepresence market.
We estimated that Zoom calls replacing business travel could contribute 27% of Exponential Roadmap’s 2030 target for the Telepresence while the total telepresence market could achieve 55%, the equivalent of 417 million single passenger New York to London economy round trip flights. Avoided emissions from calls that replaced non-business trips could also contribute towards the Exponential Roadmap target, although the avoided emissions from these trips may be harder to quantify with current data availability. Again, we hope that further data disclosure will not only help companies demonstrate the environmental benefit of their products, but also allow us to better quantify our trajectory in moving towards our 2030 emissions reduction targets.
Exponential Roadmap Solution: Electric Vehicles
Example Company from iClima’s Index: Tesla Inc
Solution Quantified: Electric Vehicles Replacing Internal Combustion Engine Vehicles
Tesla, a company that is driving innovation on many fronts, none more so than the electric vehicle (EV) revolution which is picking up speed and will go into overdrive as EV price and performance reaches parity with internal combustion engine (ICE) cars. As charging infrastructure is more widely rolled out, consumers and companies are beginning to realise the economic and environmental advantages of owning an electric vehicle and these are poised to increase yet further in the coming years as battery prices decline and renewable energy becomes more pervasive.
A 2021 paper from The International Council on Clean Transportation (ICCT) compared the life-cycle GHG emissions of combustion engine and electric passenger cars, coming to conclusions that for average, new, medium-sized cars “the life-cycle emissions over the lifetime of BEVs registered today in Europe, the United States, China, and India are already lower than a comparable gasoline car” and that “Despite certain regional differences, the relative GHG emissions performance of the different powertrains follows the same trend in all investigated regions. Only BEVs and FCEVs driving on renewable electricity-based hydrogen allow for a deep reduction in life-cycle GHG emissions compared to the currently dominant gasoline cars. While PHEVs and natural gas hydrogen-powered FCEVs show a minor reduction of GHG emissions over gasoline cars, average diesel and CNG cars do not.”
iClima used the data from the ICCT paper to estimate the potential avoided emissions that Tesla cars and the EV passenger car segment as a whole may achieve in the 2020-30 timeframe and compared this to the target for electric vehicles set out by Exponential Roadmap. Even our most ambitious scenario which factored in high annual vehicle mileage and full renewable charging from 2020 did not result in meeting the 2020-30 emissions reduction target. iClima’s volume forecasts could be considered on the bullish end when compared to other sources such as Deloitte, BloombergNEF’s EV Outlook 2021 and the IEA’s Stated Policies and Sustainable Development Scenarios. Yet some uncertainty lies in estimating key parameters in our forecast such as how clean the grid will be in the future and the volume of EVs that will be sold during the period, we hope to refine our forecast to achieve more granularity across the key vehicle types.
iClima’s recent article ‘The Electric Vehicle Revolution: The Race to Paris’ highlighted the general lack of stated ambition from incumbent automakers towards Paris-aligned electric vehicle production targets. We would like to see automakers demonstrating their strategic forward planning and increase their transparency by releasing feasible electric vehicle production aims out to at least 2030 similarly to Tesla who state in their 2020 Impact Report “by 2030 we are aiming to sell 20 million electric vehicles per year”, not doing so may indicate a risk to investors through a lack of preparedness and foresight to move quickly enough during a period of rapid transition, a fatal error that has been made by numerous firms in previous periods of technological disruption.
Exponential Roadmap Solution: Solar Photovoltaics
Company from iClima’s Index: Sunrun
Solution quantified: Residential Solar Replacing Grid Electricity
Part of iClima’s Distributed Renewable Energy Index, Sunrun is the US’s leading home solar panel company and also a provider of residential battery storage solutions, two of the key solutions experiencing high growth as their costs continue to decline and consumers recognise the possible economic, environmental and energy security benefits of choosing decentralised energy solutions.
iClima estimated additions of installed residential solar between 2020-30 for both Sunrun itself and the US residential market, we were then able to estimate the potential avoided emission from fossil fuel combustion for electricity generation under the assumption that the electricity from the residential solar additions would replace the average US grid mix of electricity. It isn’t easy to know exactly what the electricity grid mix will look like out to 2030, but under this assumption, as the contribution of renewables to the grid mix grows, avoided emissions from residential solar per gigawatt will decrease because it is replacing a less dirty grid. We found that Sunrun may contribute 0.11% of Exponential Roadmap’s emissions reduction target for the 2020-30 period while the entire US residential solar market would contribute 0.77% (although this doesn’t account for other significant emissions savings that residential solar can enable by powering things like vehicles and home heating or cooling). We also carried out a high-level global estimate for all solar PV types to try to approximate what the potential avoided emissions from fossil fuel combustion might look like if it was assumed that solar PV just replaced fossil fuel electricity generation. We assumed a growth in net capacity additions of 15% p.a. and this resulted in a figure of 3.56 GtCO2 which is 76% of Exponential Roadmap’s 4.71 GtCO2e target for the 2020-30 period.
Exponential Roadmap Solution: Wind Power
Example Company from iClima’s Index: Vestas
Solution quantified: Onshore Wind Replacing Electricity Generation from Fossil Fuels
The final company we looked at was Vestas, a global leader in onshore and offshore wind. Our forecast focused on onshore wind and 2020-30 capacity additions were estimated based on Vestas maintaining its current market share and growing at the same rate as the overall onshore wind market towards the 108 GW of onshore wind additions estimated as needed in the Sustainable Development Scenario stated in the IEA’s Tracking Onshore Wind 2020 report. When estimating potential avoided emissions for the period, we assumed that electricity from added onshore capacity would replace electricity generated from fossil fuels.
The result of our estimate indicates that if the global onshore wind market grows in line with the trajectory stated in the Sustainable Development Scenario from the IEA’s Tracking Onshore Wind 2020 report, this will contribute 55% of the Exponential Roadmap’s 1.5°C aligned 2020-30 emissions reduction target for both on and offshore wind of 2.51 GtCO2e. Offshore wind will likely contribute much less to potential emissions reductions for the period than onshore, as despite being projected to have a significantly higher growth rate for the period, it starts from a much lower base of 6.1 GW of additions in 2020 compared to onshore’ s 94 GW. This is corroborated by the IEA who mention that “offshore wind capacity additions need to more than quadruple by 2030” and “growth must accelerate for the technology to get fully on track with the Sustainable Development Scenario” – although the IEA define this scenario as only “consistent with limiting the global temperature rise to 1.65°C (with a 50% probability)” without assuming any net negative emissions.
Putting Avoided Emissions on the Map
We know that we are running late, really late on our journey to reduce greenhouse gas emission and limit the negative effects of global warming. We know where we are starting from, where we need to get to, and we’ve started to map out how we might get there. However, at this late stage we really need to get a move on and take the most direct route possible. We can’t afford to get lost, so having a high-definition map to guide us is a must.
This article has outlined some of the resources available that help us identify the key checkpoints on our ‘map’ by identifying the emissions reductions needed at our 2030, 2040 and 2050 milestones. They also help us understand the necessary contribution of sectors and economically viable solutions that can be scaled up to achieve these reductions. This helps us to increase the resolution of our map further. Moving beyond this, iClima suggest that wider use of estimates of avoided emissions of products, services and solutions by companies and organisations around the world can help us to ensure that we take a sat-nav-esque approach to our journey. Much like Waze, where contributions from the crowd ensure we take the fastest and most well-informed possible route to our destination, sharing the effort to quantify potential avoided emissions from products and services will help us to ensure we avoid delay.
Many companies have stepped up their commitment to ESG reporting in recent years, often in response to investor or consumer demand. Avoided emissions is a metric that many companies have started to report on, and not only can it be used to help demonstrate the current and future relevance of their products and services, it may also encourage investors to direct capital towards the most impactful solutions and allow us to better understand the overall emissions reductions that can be achieved by companies and sectors, giving us better clarity on our progress towards our global emissions reduction targets and the key levers we can pull to get there.
Conclusion – Better Map, Better Route and Maximizing Chances of Fast Arrival
There’s no doubt that innovation can move us away from our high-emission, business as usual activities. We have conviction that the quantification of potential avoided emissions is one of the most powerful tools we have in our hands to make this happen faster. But we need companies to disclose more. There are technologies in place and we can measure the current level of adoption of these existing solutions: Units of Solar panels, gear boxes, electric vehicles and scooters, GWh of lithium-ion batteries, MW of wind turbines, telepresence calls, carpooling rides, kilograms of plant based burgers, number of solar inverters, smart meters, smart thermostats, fuel cells, and more.
The solutions are converging, like solar with stationary batteries, EVs and home heating and cooling. We observed above how a single Tesla BEV can be 2.4 x more impactful at higher utilisation, (driven long range replacing more ICE miles) and recharged by 100% renewable energy. Telepresence is a solution in place, highly scalable and extremely affordable. But we must permanently reduce the use of airplane rides for certain business trips for the potential avoided emission to materialize.
We can borrow two key concepts from finance to further understand which solutions are the most impactful. One of them is the notion of time value of carbon. Similar to time value of money, avoidance of CO2e in the future is worth less than avoidance of CO2e now. Another is Return on Investment (ROI) that we can translate as Carbon Return - the solutions with high avoidance per $ invested. Trillions of investments will be needed. Green hydrogen is a solution much talked about, but it’s cost declines are largely dependent on the reduction in renewable energy costs and it will require massive investments that will likely avoid most emissions post 2030. We need to make sure we have a system of assessment and capital allocation to maximize avoidance pre-2030, investing in the technologies that are deflationary in nature, like renewable energy, batteries and BEVs.
Ultimately, using the words allegedly attributed to management professor Peter Drucker, what gets measured gets managed.