8 enablers of a just energy transition according to McKinsey

Strengthening supply chains, streamlining renewable project deployment and developing new carbon standards have all been highlighted as key actions that companies and businesses need to embrace to create an “orderly” net-zero transition.

8 enablers of a just energy transition according to McKinsey

Pictured: Co-located wind and solar in Denmark

New research from McKinsey has outlined the eight key enablers to delivering the net-zero transition, accounting for near-term actions and country-specific factors.

The major new report examines the near-term actions that nations, businesses and investors can deliver by 2030 in order to combat the energy crisis while improving energy resilience and affordability on the road to net-zero.

The eight building blocks are built upon three main factors that will influence how each nation can deliver an orderly energy transition. These include economic reliance on energy imports and energy-intensive industries, access to natural resources and how well renewables can perform as well as access to financial resources.

Actions that nations and non-state actors can take range from global-scale transformation, local project delivery and how various stakeholders including governments, financial institutions, companies, and individuals could take to find a path to a more orderly transition.

Streamlining access to land and simplifying permit processes to accelerate time to deployment for renewables and cleantech” was listed as one physical enabler, with the report finding that the use of alternative lands like wastelands could be transformed into solar farms or using floating renewables to help expand the installation of renewables.

The report also calls for the “modernising and repurposing of legacy infrastructure and creating new assets to accelerate the integration of renewables and cleantech into the energy system”. This would include developing modern power grids to help with renewables integration and connecting them with demand centres and demand-response programmes that improve flexibility.

The third enabler listed in report is “strengthening global supply chains to secure critical raw materials, components, and labor competencies”, noting that nations will need to develop regional resource strategies to match their needs and what they can sustainably grow and produce. This would include promoting recycling and reuse to limit resource demand.

“Decarbonising the industry and transportation sectors by investing in new technologies” is the critical fourth enabler, with the report highlighting hydrogen solutions and carbon capture, utilisation and storage (CCUS) as technologies that should be given focus alongside energy efficiency. This would require new financing for solutions which in turn would help reduce emissions in hard-to-abate sectors like transport and industry.

The remaining enablers are considered adjustments to the economy and society, rather than physical production options. “Limiting and mitigating emissions-intensive generationis listed as an enabler and focuses on limiting new fossil fuel assets to avoid stranded assets in the future. This would see economies shift to renewable power generation supported by at-scale storage solutions.

Another enabler ismanaging economic dislocations to promote energy affordabilitywhich refers to creating new and fair opportunities for communities that are currently at risk because of the climate crisis and other geopolitical issues. This would include compensation mechanisms and subsidies to help promote growth. Workers in “at-risk industries such as fossil mining” will need safety nets and the report suggests introducing upskill programmes can help deliver the energy transition while protecting workers.

The final two enablers cover governance, with the first focused on “Developing stable and attractive remuneration frameworks” for cleantech. One example listed in the report is that of virtual power purchase agreements that could be applied on a global scale, or establishing and scaling capacity markets to support flexibility.

The final enabler to securing the energy transition is “scaling frameworks and standards to measure the carbon intensity of energy”, which looks at improving markets and standards. This would include introducing new carbon pricing to help accelerate the shift to renewables and promote low-carbon technologies for business use. The report states that eventually low-carbon and green premiums could be created for hydrogen and alternative fuels as well as low-carbon alternatives for commodities such as steel and cement.

“Renewable energy and grid improvements require up-front capital investment. These capital investments pay off over various time horizons in the form of reduced operating expenses and improve energy resilience and cost. The transition will also require investments to address stranded costs in fossil-fuel assets, conduct at-scale R&D, retrain the workforce, offer safety nets to vulnerable groups, and fund early-stage infrastructure deployment to initiate ‘learning curve’ effects,” McKinsey stated in an accompanying brief to the report.

“Both more and less affluent countries find themselves under budget constraints these days, but the former have many more resources and face fewer trade-offs than the latter in making these investments.”

McKinsey noted that the total primary energy consumption share for renewables has grown from 9% in 2011 to 13% in 2021. However, the use of fossil fuels is also expanding as global energy demand grew by 14% from 2011 to 2021.

Separate McKinsey analysis also notes that a global energy transition is required as there could be an annual gap of 2.4 Gt carbon dioxide equivalent (CO2e) between the “current trajectory” and the trajectory of an “achieved commitments” scenario based on national commitments issued at COP26. This Is equivalent to 7% of all energy-related emissions in 2021.

To bridge this gap, McKinsey notes that the annual capacity of wind and solar would need to triple from approximately 180GW of average yearly installed capacity in 2016–21 to more than 520 GW by 2030.

Additionally, the net-zero energy transition would require between $1-3.5trn in average annual capital investment globally through 2050.

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