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A successful net-zero transition will require achieving not one objective but four.


Though there has been meaningful momentum, the world is not on track to achieve the goal enshrined in the Paris Agreement of limiting warming to well below 2°C or ideally 1.5°C. To meet that goal, countries and companies have committed to reaching net-zero emissions of CO and reducing emissions of other greenhouse gases. But there has not been enough progress. The share of primary energy produced by renewable sources, for example, has risen slowly, from 8 percent in 2010 to 12 percent in 2021.


If emissions stay on their current trajectory, estimates from various sources suggest, net zero would not arrive even by the end of the century.


A successful net-zero transition will require achieving not one objective but four interdependent ones:


emissions reduction,

affordability,

reliability,

and industrial competitiveness.


A poorly executed transition could make energy, materials, and other products less affordable, compromising economic empowerment. It could also make the supply of energy and materials less secure and resilient, and it could render some countries and companies less competitive. If that happened, progress toward net zero itself could stall.


According to McKinsey Research Study , seven principles can help stakeholders successfully navigate the next phase of the transition.




For example, deploying lower-cost solutions and driving down the cost of more expensive ones could bolster affordability. Managing existing and emerging energy systems in parallel could make access to energy more reliable. Seeking opportunities by using comparative advantage as a guide could help countries bolster their competitiveness. Following those principles could substantially improve the world’s current trajectory.


Capital spending on low-emissions technologies would potentially be one and a half to two times as large as it is now—as opposed to about three times, as might be the case if the two principles were applied less extensively. Embracing a change of mindset can help the world move closerto net zero. In addition to global commitments to reach net zero in the future, stakeholders should commit to making more and more progress every year and doing so in a way that addresses all four objectives.



The effort to meet the goals of the Paris Agreement is not currently on track, as a recent report from the United Nations shows. Many public and private actors, aspiring to meet those goals, are working to usher in the transition’s next phase, one in which more capital flows toward the transition and the deployment of necessary technologies expands substantially.


Often, the transition is envisioned as a single great challenge: reducing emissions from energy, materials, and land use and other systems. In practice, it consists of four objectives: emissions reduction, affordability, reliability, and industrial competitiveness. If achieving the first of those objectives risks compromising the other three, momentum toward net zero could be derailed.


Solar power and wind power account for more than 10 percent of electricity generation and 75 percent of new electricity-generating capacity. Electric vehicles (EVs) make up about 15 percent of new vehicle sales, and the range of the average EV has increased nearly three times during the past decade.

Large-scale plants are being built for such newer technologies as low-emissions steel production and carbon capture, utilization, and storage (CCUS). Businesses are starting to reallocate resources from high-emissions to low-emissions products.

Climate-related venture capital investments reached $70 billion in 2022, almost double the 2021 amount. The global financial sector is strengthening its response to climate change; annual global investment in transition technologies has doubled, from $660 billion in 2015 to more than $1 trillion today.


And new market instruments, such as advance market commitments, are emerging to spur innovation.


Source:McKinsey



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