Energy transition progress report: We’re 10% of the way there
Energy transition progress report: We’re 10% of the way there
The U.S. and others have set a goal to get to net-zero greenhouse gas emissions across the economy by the year 2050. The McKinsey Global Institute is just out with a new report called “The Hard Stuff: Navigating the Physical Realities of the Energy Transition.” And it turns out we have a lot of work to do.
A lot of that has to do with the fact that major physical and structural transformation has to occur to unlock big chunks of the energy transition.
“We’ve approached this as an economic question, a policy question — all very legitimate questions, but we’ve forgotten that, at its core, what we’re talking about is a physical transformation,” said Mekala Krishnan, partner at the McKinsey Global Institute. “We need to build a new low-emissions energy system, and we need it to work.”
Krishnan is co-author of the report. She spoke with “Marketplace Morning Report” host David Brancaccio, and the following is an edited transcript of their conversation.
David Brancaccio: I mean, it was always hard. All of this is hard. But what have we been doing, the low-lying fruit? That’s what we’ve been picking so far?
Mekala Krishnan: Yeah. So that’s exactly the kinds of questions we were investigating in this research. And, indeed, what we find is, while there’s been a lot of momentum on many fronts — we’ve seen technology costs come down, we’ve seen deployment happen of many technologies — unfortunately, the reality is we’re only 10% of the way there in terms of deploying a whole range of technologies: renewable power, electric vehicles. Only 10% of where we need to be. And so the question we really wanted to ask with this work is, what do we need to do to get from 10% to 100%? What is that remaining 90%? What is it actually going to take?
And in some sense — and this has been our work as well in the past — we’ve often approached this as a financial question: “What’s the trillions of dollars we need to spend?” We’ve approached this as an economic question, a policy question — all very legitimate questions, but we’ve forgotten that, at its core, what we’re talking about is a physical transformation. We need to build a new low-emissions energy system, and we need it to work. And so that’s what we’ve done in this research: a comprehensive stock take — we think the first — of the 25 physical challenges. By physical challenges, I mean the challenges associated with the performance of low-emissions technologies, what it will take to build them, their supply chains, their infrastructure — a comprehensive stock-take of what they are. We’ve identified 25 of them, and where we stand on them.
Brancaccio: I know we’re getting used to, in America, tweaking the software code or something, and causing revolutions — producing revolutions, I should say. This requires heavy equipment, digging in the ground. It requires mining materials. A lot has to get done. Of the 25, highlight a couple, just to give us a sense of it.
Krishnan: The 25 — you’ve characterized them exactly right. This is about building stuff and making sure that it works. I mean, I think one way people could approach this transition is to say, “Well, we’re swapping in a light bulb that doesn’t work with one that does.” But actually, we’re talking about rewiring the whole system, right? And so what we’ve come up with here is what we hope is a good blueprint for that rewiring.
So let’s get into the 25; they’re not all made equal. What we found was that about half of them — and that’s about half of energy system-related carbon dioxide emissions — are relatively easy. So these are areas where we’ve made meaningful progress. There’s still work to be done to do the last mile of innovation to really accelerate deployment, but about half of emissions are in this relatively easy category.
So examples of this might be heat pumps and making sure that heat pump technologies work in the coldest climates. But about half of these challenges, 12, which we might alliteratively call the “demanding dozen,” are in areas where the challenges, the hurdles are much harder. Here, we have technologies that don’t yet perform at the level that we need them to. We have massive scaling needs. So I talked about 10% on average [in terms of overall progress]. In these challenges, we’re at maybe 1% or even less. So massive transformation still to come. And, unfortunately, it’s not just one technology that we need to get to work. To get this demanding dozen to work, we actually need a set of technologies to work together. So it’s an interlinked challenge. So there are a few different hurdles for this demanding dozen that we need to overcome.
Brancaccio: So it’s not just a question of, “We know how to build a highway. We just have to lay down more asphalt.” There are actually technological problems that have to be solved. There have to be inventions that haven’t been invented.
Krishnan: Yeah. So let me give you an example, right? I’m an engineer by training, so I will take you down the journey of decarbonizing steel for a minute, if you will. So steel production today: We produce about 1.8 billion tons of steel every year. Think about that. That’s enormous. For every ton of steel that’s produced, we produce two tons of carbon dioxide. So the task at hand is a lot.
There’s three different problems with decarbonizing steel. The first, to your point about technology: We do have line of sight on technologies to decarbonize steel, but they all have some issues. Some of them require very high-grade iron ore, and we don’t really have that much high-grade iron ore. Some of them might require a lot of steel scrap. And so there are these performance gaps that the nature of these technologies means that we can’t really yet decarbonize steel in its entirety. So that’s one kind of issue.
The second kind of issue is that decarbonizing steel requires not just decarbonizing steel, but actually a whole range of other inputs, which we still don’t have access to.
And then a third kind of issue with decarbonizing steel is, again, back to my “we’re in the early days” — less than 1% of primary steel that’s produced today is produced in a low-emissions way. We’re talking about 1,300, 1,400 steel facilities that exist around the world, each producing millions of tons of steel, that need to be physically transformed. We actually need to physically change out these facilities, and we’re in very early days of this transformation.
Brancaccio: So you’ve been down this deep rabbit hole. Are you left thinking that we can’t actually pull this off because of these challenges that you detail?
Krishnan: People often ask me this question, “Are you an optimist or pessimist about the transition?” And I would choose to say I’m a pragmatist about it. We have the easier stuff that we’ve identified, and really the task at hand for those easy things is getting focused on execution and deployment. About half of energy emissions are in the relatively easier things. We really need to get going on deploying, on executing, laser-focused on that.
For the harder stuff, I think there, the question really is, “How do we unlock these performance gaps, these scaling challenges, these interlinked issues?” But I think it’s not innovation with a small “i.” It’s not just going through the problem, not just innovating on individual technologies. We need that. We need better batteries. We need more efficient electrolyzers to produce hydrogen. So we need innovation with a small “i.”
But we also need innovation with a big “I,” meaning we need ways around the problem as well. Where the problems are really hard, we need to think about ways that we reconfigure the system as a whole to make it work. So examples of that might be for trucking. Batteries can sometimes struggle with long-haul distances with heavy payloads, because batteries are heavy. If you need the truck to go a longer distance, you need a heavier battery. And so in that case, instead of going through the problem, meaning innovating on battery energy density, you could also go around the problem: reconfigure trucking routes to have them be shorter, for example.
Another example of going around the problem is, instead of trying to decarbonize all of cement, which is hard, think about changing a little bit of how you use cement — use other materials instead. So even in these hardest challenges, we do identify areas of low-hanging fruit that can at least start to bend the emissions curve. And I think this is part of where we want the dialog to change, which is not just 2050, but what can we do in the here and now. And then, of course, start to plan for the bigger transformations that are to come.
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