Reaching net zero emissions It will require a tremendous effort to invent, improve and implement climate technologies that are clearly aimed at accelerating decarbonisation. Research shows, for example, that annual production of clean hydrogen, a low-carbon energy carrier, would need to increase more than sevenfold for the world to reach net zero by 2050.
According to one study, global long-term energy storage capacity to support renewable energy use needs to increase 400 times by 2040 to help the energy sector reach net zero.
Currently, we see ten climate technology families as critical in meeting the net-zero challenge, and we expect others to emerge (exhibit). As demand for them grows, companies will have significant value creation opportunities while helping to reduce emissions. McKinsey analysis shows that in a scenario where the world will reach net zero by 2050, capital expenditure on relatively low emissions-intensity equipment and infrastructure would average $6.5 trillion per year – more than two-thirds of annual capital expenditure of $9.2 trillion at that time. more than. time.
Our view is that almost all of these low-emission assets will include climate technologies.
This does not mean that innovation and adoption of climate technologies will be easy. More likely, these processes will be destructive. During the net-zero transition, the world’s energy system, as well as its emissions-intensive stock of equipment and infrastructure, will be reconfigured to run on renewables rather than fossil fuels through climate technologies. This means not only making and using renewable energy, but also moving it from production hubs to end markets, such as sunny areas that produce solar power cheaply. As these changes take place, some value chains will be broken and new ones will be formed.
Innovation must also accelerate. Costs for most climate technologies are falling too slowly to reduce emissions in line with mid-century net zero targets. Breaking the cost curve will require unconventional approaches to technology development, integration and scaling; this includes a degree of collaboration rarely seen for other types of technology.
Our experience working with hundreds of climate technology companies and value chain participants shows that influential organizations recognize three key aspects of the climate technology world: climate technologies are highly interdependent; Competing in these interdependent markets requires collaboration between value chains and industrial ecosystems; and strong first mover advantages can be achieved through risk taking and bold action. Here we offer a closer look at these thoughts and how leaders can respond to them.
Climate technologies rarely stand alone
Most climate technologies are only applicable when other climate technologies are applied at the level of facilities, businesses, regions or value chains. For example, green methanol is considered the most technically advanced fuel to power green shipping; methanol engines for ships are already on the market. E-methanol, a form of green methanol, can be made by combining green hydrogen with biogenic CO2.2nd (CO2nd derived from biomass). In the near term, expanding green methanol production is likely to include scaling up carbon capture for industrial biogenic CO sources.2nd.
A critical prerequisite for the success of many climate technologies, including green methanol and green hydrogen, other synthetic fuels, green steel and carbon capture, is the creation of renewable electricity generation and storage capacity. Access to sources other than renewable energy may also limit the growth rate of climate technologies: for example, batteries for electric vehicles and utility-scale energy storage systems require constant inputs of hard-to-find materials such as cobalt and nickel.
A critical prerequisite for the success of many climate technologies, including green methanol and green hydrogen, other synthetic fuels, green steel and carbon capture, is the creation of renewable electricity generation and storage capacity.
Additional complexity arises because climate technologies take different forms that may have their own particular dependencies. Provide long-term energy storage. This technology suite includes four main categories: chemical, electrochemical, mechanical and thermal. Each category includes multiple technologies, and each has reached a different level of maturity and market readiness. A look at the possible uses of long-term energy storage in a sector (electric power) also reveals that the economics of each use case may depend on changes (in other parts of the energy system) that change the flexibility of the grid and storage needs.
Because of such relationships, it is helpful for leaders, senior managers, and staff to learn about the many technologies and how they interact. They will want to examine how enabling conditions, including industrial capabilities, infrastructure requirements, and public policies, may favor or constrain technologies. They will also want to understand the restrictions on critical materials. Experience shows that dealing with limited supply will require much more sophisticated forecasting techniques, along with short-term and long-term plans. Informed by this knowledge, leaders can identify integrated scenarios for technological innovation and use them to identify promising opportunities.
Collaboration creates competitive advantage
The interdependence of climate technologies means that scaling them often requires organizations to work together to create new value chains and industrial ecosystems; this is a more collaborative approach than businesses might be used to and one that can disrupt existing networks.
The hydrogen industry provides a good example. A report by the Hydrogen Council (an industry consortium) and McKinsey states that more than 520 projects have been announced, representing $160 billion of investment, and an additional $540 billion will likely be needed to reach net zero by 2050. He also explains that high hydrogen demand will encourage organizations to invest in infrastructure and generation capacity, but that demand will only reach mass scale when infrastructure and production capacity are available to make low-cost clean hydrogen. To encourage action, the council is facilitating coordination between potential hydrogen suppliers and buyers, as well as ecosystem players such as financial institutions (many of whom are looking for low-emission projects to invest in) and governments. supporting a new industry.
Similar approaches could advance other climate technologies. For example, research on the nascent market for zero-emission trucks shows that industry groups can help not only coordinate the launch of vehicles and related infrastructure (such as charging stations), but also regulate financing models for the purchase of both trucks. and infrastructure. The World Economic Forum’s Clean Sky Coalition for Tomorrow, a multi-stakeholder group supported by McKinsey, argues that supportive regulations, demand-stimulating measures and new financing mechanisms can help increase production and lower the cost of sustainable aviation fuels.
Managers who see potential in a climate technology should not wait for a supportive ecosystem to emerge. They can step forward to accelerate distribution, organize colleagues and partners, bring engineers and scientists together, and build networks that bring together demand, production, infrastructure, finance and knowledge. By developing joint plans or roadmaps to commercialize climate technologies, ecosystems can foster change, create markets and avoid wasting efforts on duplicate projects.
Fast trackers may never catch the first movers
For many decarbonisation needs, no climate technology yet dominates as standard. And because ecosystems are needed to support many climate technologies, creating networks like the ones described above can help establish a climate technology as an industry’s solution of choice. Therefore, first-mover advantages exist for companies that organize or participate in climate technology ecosystems early on. Fast followers may have a hard time breaking into such alliances once they are formed.
These pressures will force all leaders, especially those in established industries, to make difficult choices. They will need to weigh the short-term earnings potential of their current assets against possible opportunities for exponential growth in climate technology markets. They will need to decide how much of their resources they need to invest more in serving markets that will begin to shrink, and how committed they should be to producing mature climate technologies and inventing next-generation technologies. They will then need to organize or participate in ecosystems that help new technologies gain acceptance and scale.
Maneuvering in this uncertainty will be daunting, let alone evolving. The boundaries of the ultimate net zero economy are still blurred, but waiting for them to become clearer can mean missing out on valuable opportunities. This pressure makes it valuable for organizations to identify where they can compete and to boldly position themselves, especially in markets where first movers have yet to take the lead.
The spread of digital technologies has given rise to dominant young firms and confused the hierarchy of established businesses. Now, the growth of a trillion-dollar market for climate technologies is poised to restructure industries and redistribute value across the economy, creating new success stories for green startups and fast-moving established businesses alike. These developments will define the legacy of leaders in the public and private sectors. Those who act boldly can better position their companies for long-term success while supporting the urgently needed global response to climate change.