4 Stepping Stones to Sustainability for New Construction Firms
The construction industry has a well-deserved reputation for being an environmental polluter. It has gotten away with ungreen practices because the other sectors are just as dirty, if not more. However, climate change has made the world less tolerant of environmentally unsound organizations. Governments have joined the sustainability movement, so the writing is on the wall for maladaptive enterprises.
Many firms are slow to adopt greener practices, but the influx of startups can accelerate the sector’s sustainability transformation. New design-build firms, general contracting businesses, and subcontractors are better positioned to embrace eco-friendly initiatives.
The corporate culture is still a blank canvas, so start fresh with these four tips.
Go Digital
Technological adoption and sustainability go hand in hand. Outdated methods and crude tools limit your ability to overcome your blind spots and find opportunities to operate more sustainably. Investing in digital technologies is necessary to address your pain points and streamline your processes.
Which innovations should you prioritize? There are numerous excellent candidates:
Mobile devices and messaging tools can harness cloud computing’s potential to promote remote resource access and foster interconnectedness. The interplay between these technologies will break down the usual communication barriers, making it easy to keep everybody on the same page.
Computer-aided design, building information modeling, and construction management programs streamline processes. They have unique functions but digitize data so you can review information more granularly. Analytics programs can reveal insights to solve problems that harm the environment, like surplus inventory and rework.
LiDAR and camera-equipped drones, wearable Internet of Things devices, and telematics systems can collect data on almost anything. They can help you precisely and accurately scan the landscape to minimize disturbance on existing ecosystems, quantify worker performance to identify and correct wasteful habits and keep tabs on equipment usage.
Bots automate tedious tasks, allowing you to conduct construction work more efficiently. Robotic arm 3D printers and bricklayers can help you complete projects faster and decrease material waste.
Construction has been slow to innovate primarily due to employee hesitance. Feeling intimidated by innovative solutions and receiving inadequate technical support are some of the usual baggage crews carry. Budget for training and continuous learning, as technologically savvy workers feel comfortable with innovations and can maximize their tools to run your business more sustainably.
Be Circular
Circularity promotes using renewable, reclaimed or recycled materials, reusing or repurposing items, recovering salvageable materials, and designing structures with easily recoverable components. Such practices aim to leave the remaining virgin resources untouched because logging, mining and quarrying have considerable environmental consequences. These extraction methods destroy natural habitats, displace wildlife, eradicate biodiversity, pollute soil, water and air, and reduce natural carbon sinks.
Considering the planet’s finite resources, the construction industry has to switch from the linear to the circular model sooner rather than later. Otherwise, the sector will face crippling supply chain disruptions, which can result in project delays and loss of profits. How do you join the circular economy?
Buy reclaimed, recycled and repurposed construction supplies: Try doing so whenever you can to help conserve virgin resources.
Choose vendors carefully: Circular suppliers engaging in unethical practices practice greenwashing, not sustainability. Exercise due diligence to ensure your supply chain partners are as green as they claim to be to avoid enriching environmentally damaging businesses.
Select used equipment over new products: Purchasing pre-owned tools, machines and vehicles is sustainable because they’re already around. Ordering brand-new assets incentivizes manufacturers to build more products, potentially using newly extracted raw materials. Plus, pre-owned models save you money because used items cost less, less downtime is necessary for training and replacement parts are usually cheaper.
Put a premium on prefabrication: Prefab construction minimizes waste since it’s easier to control material usage when building components off-site in a factory-controlled environment. More importantly, construction modules lend themselves to deconstruction, simplifying dismantling and material recovery for reuse or resale.
Emit Less
Decarbonize your operations at every turn. Switching from diesel to electric is one of the best ways to do so. Powering your assets with nothing but electricity eliminates air and noise pollution on-site.
Running on electricity doesn’t automatically translate to fewer greenhouse gas emissions. In 2023, fossil fuels produced 60% of the electricity generated in the United States. The nation’s power mix will be cleaner once green hydrogen becomes ubiquitous, so operating electric construction assets will be even more eco-friendly in the future.
If upgrading to electric equipment doesn’t make sense for you, adopting renewable diesel is the next best thing. This alternative fuel is chemically identical to fossil-derived diesel, so you can use it on your existing assets without modifying anything. Renewable diesel releases fewer climate change gasses because it burns cleaner.
Furthermore, localize your supply chain. Ships are responsible for 3% of all greenhouse gasses linked to human activities globally. Ordering materials from overseas will increase your construction firm’s carbon footprint, but transporting domestically sourced materials involves fewer emissions. It’s also logically simple because they cover less ground and avoid Customs and Border Protection. As a bonus, you enjoy shorter lead times.
Make it a mission to have a lean mindset. A lean construction philosophy aims to cut waste at every chance, minimizing idle time and redundant processes that drive up greenhouse gas emissions.
Look Ahead
Sustainability isn’t an objective — it’s a purpose. It’s a never-ending pursuit, so always seek new ways to run your construction firm in an environmentally friendly way.
Lack of knowledge about emerging technologies is among the limiting factors in innovating. Curiosity is the antidote to ignorance, so keep up with the hottest trends in eco-building. Transparent wood, superabsorbent hydrogel, luminescent cement, 3D-printed soil structures, biodegradable polyurethane foam and plasma rock are some of the most promising innovations.
Most promising eco-friendly construction solutions take a lot of development before becoming ready for sale — and only a few ultimately gain mainstream acceptance. Although many ingenious ideas don’t pan out, be ahead of the curve. Use them to inspire regenerative and climate-resilient building designs that positively impact the environment for decades.
Take Small Steps Toward Sustainability
These four strategies only scratch the surface of what you do to be a force for good in the sector’s sustainability transformation. Strive to be more eco-friendly as you grow and you’ll establish a solid reputation as a green construction business.
Intel’s new manufacturing plant in Leixlip, Ireland, which cost $18.5 billion to build, is replete with technologies touted for conserving energy and water including programmable, all-LED lighting and a water reclamation and filtration system that could save 275 million gallons a year.
One of its more unusual features, however, is an approach that’s often overlooked: capturing heat generated by equipment in the facility and funneling it into production processes rather than expelling it through cooling towers. This was accomplished by the installation of recovery chillers that capture heat created by Intel’s high-temperature manufacturing processes and pipe it in the form of heated water to other places at the facility.
Intel estimates these heat recovery measures will allow it to significantly cut the natural gas it must buy to run operations at the site, Fab 34. It will use nine times as much recovered energy than what is generated by other fuels, the company projects. That so-called “waste heat” can be used for tasks such as preheating the ultra-pure water Intel needs for semiconductor fabrication or keeping buildings at the site warm during cooler weather, said Rich Riley, principal engineer in Intel’s corporate services development group.
“If we didn’t have that heat, we would need that much more gas to facilitate the [heating, ventilation and air-conditioning] operations,” Riley said. “This is an overall reduction of natural gas consumption.”
Over time, Intel’s plan is to build on heat recovery and other energy efficiency measures by updating them with industrial equipment, such as heat pumps, that run on electricity.
Intel’s near-term energy-related sustainability goals include reducing Scope 1 and 2 emissions by 10 percent by 2030 from a 2019 baseline (it has achieved 4 percent as of fiscal year 2022); and conserving up to 4 billion kilowatt-hours cumulatively.
An untapped source of energy efficiency
Intel hasn’t disclosed the potential impact on its carbon emissions this heat recovery at Fab 34 effort could have, but a retrofit using water-to-water heat pumps in Fab 10 (also in Leixlip) will save an estimated 18.3 million kilowatt-hours of electricity annually. It will reduce Scope 1 emissions by about 4,760 metric tons, but Scope 2 emissions will increase by about 1,627 metric tons because of the electricity needed for the heat pumps.
Industrial energy remains a thorny challenge for corporate sustainability teams: An estimated 20 percent to 25 percent of energy consumed globally by industrial sources is still predominantly powered by coal and natural gas, according to the International Energy Agency.
The potential energy cost savings of using recovered waste heat for industrial processes, district heating applications or to generate electricity could reach up to $152.5 billion annually, slightly less than half the value of the natural gas imported by the European Union in 2022, according to a McKinsey report published in November. The analysis estimates the global recoverable heat potential is at least 3,100 terawatt-hours.
“In our view, if you want to decarbonize, heat recovery and waste heat is one of the most economical levers available,” said Ken Somers, a McKinsey partner who was one of the report’s authors. One barrier to adoption has been low natural gas prices, but tariffs and supply shortages have prompted companies to rethink their dependence, he said.
The industrial heat pump technology needed to move heat from where it’s generated to where it’s needed in a production process is also maturing. The potential for manufacturers of chemicals, consumer products, food and pharmaceuticals to use this approach is growing as a precursor to the electrification of production systems, said Patricia Provot, president of thermal production equipment manufacturer Armstrong International.
“If your plan is to fully decarbonize, your first step is to get rid of steam and use hot water, and then try to recover as much of that waste heat as possible and put it back into the system,” Provot said.
Aluminum is a silvery-white, soft, nonmagnetic metal. It has good electrical and thermal conductivity and is used in many products, from cars and airplanes to packaging, foil and cans. It is a highly versatile metal, but many people don’t realize that it’s also one of the most carbon-intensive metals to produce.
Because it is used in so many diverse applications, the aluminum industry has a big environmental footprint. Aluminum production emits about 1% of global man-made greenhouse gas emissions. Most of these emissions come from using fossil fuels to make aluminum oxide (alumina), which is then reduced to aluminum metal in smelters.
The aluminum industry is working on ways to reduce its emissions. One promising technology is “carbon-free” or “green” aluminum production. This process uses renewable electricity – instead of fossil fuels – to produce alumina, which can then be turned into aluminum metal using existing smelting technology.
Several companies are already using or testing this technology, including Rio Tinto, Alcoa, Hydro and China’s Chalco. These companies are betting that carbon-free aluminum will be in high demand from industries and consumers who want to reduce their emissions footprints.
Why is aluminum production carbon-intensive?
There are two main reasons why aluminum production is so carbon-intensive. First, alumina, the raw material used to produce aluminum, is derived from bauxite ore, typically found in tropical regions. The process of mining and refining bauxite ore releases large amounts of carbon dioxide into the atmosphere.
Second, smelting alumina to produce aluminum metal emits significant amounts of carbon dioxide. Smelting is responsible for approximately two-thirds of the total emissions associated with aluminum production.
How will the industry decarbonize aluminum?
The most common method of producing aluminum involves the electrolysis of alumina in a high-carbon anode, which results in significant emissions of greenhouse gases. The industry is developing low-carbon technologies to reduce or eliminate these emissions.
Another promising technology is using renewable energy to power the electrolysis process. This would significantly reduce the carbon footprint of aluminum production. Solar, wind, and hydroelectric power can all power these processes while significantly reducing or eliminating emissions.
Recycled aluminum requires less energy to process and emits far less carbon dioxide than virgin alumina.
Each of these options comes with its challenges, but the aluminum industry is committed to finding ways to reduce its environmental impact. For example, Rio Tinto is investing in research into new smelting technologies that could significantly reduce emissions. Alcoa is working on a project to power its operations with renewable energy from forest biomass waste.
Will the quality of low-carbon aluminum be lower?
Decarbonized aluminum is made using low-carbon methods, which results in a lower carbon footprint. However, some worry that this type of aluminum will be of lower quality than regular aluminum.
No evidence suggests that decarbonized aluminum is any less strong or durable than regular aluminum. In fact, it may even be of higher quality due to the extra attention to the manufacturing process and modern innovations in the process. Low-carbon methods often result in a cleaner and more pure product.
A study by the International Aluminum Institute found that, when using best practices, there was no significant difference in the quality of low-carbon aluminum and regular aluminum. The study found that, in some cases, low-carbon aluminum had superior properties.
This is because environmental regulations are becoming more stringent, forcing producers to innovate and find ways to reduce their carbon footprint without compromising on quality.
Major study from Aldersgate Group and Frontier Economies details how more demanding mandatory product standards could deliver huge climate and economic benefits
The Aldersgate Group of businesses has today published a major new report detailing how the introduction of mandatory standards addressing the lifecycle emissions of products could strengthen the UK’s industrial sectors and accelerate decarbonisation efforts across the economy.
Carried out in conjunction with consultancy Frontier Economics and based on extensive engagement with over 20 major businesses from across the economy, the report calls on the government to implement mandatory product standards that place a limit on the lifecycle emissions of products sold in the UK market.
Some industries have traditionally lobbied against more demanding green standards for products, arguing they lead to higher costs and can undermine international competitiveness. But the report argues that the opposite is true, as higher standards would help support the competitiveness of UK industry, by preventing cheap, high carbon imports from undermining goods produced in the UK.
“By requiring both intermediate industrial products, such as steel and glass, and end-consumer goods, like cars and buildings, sold on the UK market to meet a minimum standard on lifecycle emissions, durability, and recycled content, the government can ensure that industry is competing on a level playing field,” the report states. “This will also mean that companies pushing further on reducing emissions are not put at a competitive disadvantage.”
“Product standards can help to support an efficient low carbon transition,” added Matthew Bell, director at Frontier Economics. “Our work with leading companies across the UK suggests broad support for properly implemented mandatory standards to ensure a level playing field and clear signal about the pace and destination for their products. They would help to plan new investment and inform consumers.”
The report provides the government with six recommendations for how to deliver mandatory product standards covering lifecycle emissions, including establishing clear timelines for their introduction, developing standards that apply throughout supply chains, and assigning an existing or new institution to oversee the development of new standards.
It also calls for standards to be strengthened over time so as to drive continued innovation and decarbonisation, for companies to be required to report on the lifecycle emissions of products so that data can be shared, and for the government to work with policymakers internationally to ensure its new standards are interoperable with those adopted overseas.
The report comes just days after the EU reportedly reached agreement on sweeping reforms to its EU Emissions Trading Scheme (ETS) that should drive up the cost of carbon across the bloc and is set to be accompanied by the introduction of carbon border tariffs to protect EU firms from unfair overseas competition.
“The transition to net zero emissions provides the UK with a genuine opportunity to offset the decline in industrial activity in recent decades and develop new UK-based supply chains in areas such as low carbon steel, cement, glass and chemicals manufacturing,” said Nick Molho, executive director of the Aldersgate Group. “Product standards have a vital role to play in providing manufacturers with a reliable signal that there will be a growing market for these products, which in turn will help unlock the private sector investment needed in low carbon industry. This must be one of the key policy areas that the government should work on as part of its overall framework for decarbonising heavy industry.”
The report comes just days after think tank Onward published a separate study that warned the UK risked missing out on a green factory boom across the country’s former industrial heartlands unless urgent action is taken to attract investment in the green industrial and manufacturing facilities that are set to drive the net zero transition globally.
“The green industrial revolution is a big risk for UK factories that make cars and steel, and for workers in the UK’s oil and gas industry,” said report co-author Ed Birkett. “The government must work night and day to secure the green factories of the future, or there’s a risk that we’ll lose industrial jobs forever. We need to make the UK an attractive place to invest in green factories. This means cheaper energy, lower business rates, cash incentives, a carbon border tax to stop offshoring, and more.”
Cement manufacturer Hanson aims to deploy CCS system capable of capturing 800,000 tonnes a year of CO2
Hanson’s plan to develop a carbon capture and storage (CCS) system at its Padeswood cement works in North Wales have taken a major step forward, with the manufacturer awarding Mitsubishi Heavy Industries Engineering a preliminary design contract for the industry-leading project.
The company, which is the UK-arm of global cement giant Heidelberg Materials, is planning to develop a CCS system capable of capturing 800,000 tonnes per year of CO2 from the Flintshire cement factory, with a view to having the system up and running from 2027.
The captured CO2 would be transported and stored under the seabed in spent gas fields off the coast of Northwest England, according to Hanson, which claims the project would constitute the UK cement industry’s first adoption of CCS technology.
As part of the project, Mitsubishi Heavy Industries (MHI) Engineering – part of global conglomerate the MHI Group – was last week handed a preliminary front end engineering design contract for the CCS system, which is set to use technology developed in Japan alongside the Kansai Electric Power Company.
It marks MHI’s third CO2 capture project involving a cement plant, with the firm having previously worked on a CCS feasibility study for Lehigh Cement Company in Alberta, Canada, and a CO2 capture demonstration testing program currently underway on behalf of the Tokuyama Corporation in Japan, it said.
Decarbonising the global cement and concrete sector is a crucial hurdle on the pathway to net zero emissions, as the sector is one of the world’s biggest sources of CO2, accounting for up to eight per cent of global greenhouse gas emissions.
As such, a host of researchers and developers are increasingly focused on developing solutions that can deliver greener concrete and cement.
In releated new, academics from Teesside University last week announced they are collaborating with industry partners on a £7.6m project to develop low carbon cement made from by-products from the steel and chemical industries.
The scientists and developers behind the building material, which they call ‘Mevocrete’, claim it can result in up to 85 per cent less carbon dioxide compared to traditional concrete made from Ordinary Portland Cement, the production of which remains a highly energy-intensive process.
The new approach harnesses a “revolutionary” construction material made using waste steel slag patented by Middlesbrough-based company Material Evolution, Teesside University said, following the award of government funding from Innovate UK to work with Material Evolution on the project.
The new project aims to scale up the technology to create a full-scale facility for cement production using waste steel slag at Teessworks.
The University’s project lead, Dr Sina Rezaei Gomari, said: “For the UK to meet its net zero targets it is imperative that new ways to decarbonise the construction industry are found, and this project has the potential to have a major impact in reducing greenhouse gas emissions.”
Decarbonization is becoming a higher priority. Here is how it can be done—and how much it might cost.
The power sector is undergoing a global transformation. Over the past decade, the costs of renewables have dropped substantially—solar power by as much as 80 percent and wind power by about 40 percent—making them economically competitive with conventional fuels, such as coal and natural gas, in the vast majority of global markets. As a result, renewables are growing fast: they accounted for the majority of new power-generation capacity in 2018. In most markets, they are now the least expensive option to add marginal capacity. In addition, renewables make up an essential element of any country’s plan to cut greenhouse-gas (GHG) emissions.
It is not possible to control when the sun shines or the wind blows, however. Therefore, 24/7 matching of the supply of wind and solar power to demand cannot occur the way that baseload-generating plants fueled by coal, natural gas, or nuclear power can. That creates a conundrum. Utilities, municipalities, states, and nations want low-cost, reliable electricity. Many have also set goals to decarbonize1 their power systems. How can they do both?
Few utilities or governments have yet compiled a detailed, quantitative pathway to decarbonizing the power sector substantially.
Flexibility—the ability to manage the intermittency of nondispatchable power, such as wind and solar power—is crucial to integrating significant levels of clean power. There are different ways to ensure the real-time matching of supply and demand.2 For example, gas and coal plants can adjust production up or down to smooth out fluctuations in the output of wind and solar power. Transmission lines can balance production across geographies. Well-designed incentives can encourage users to modify their consumption via demand-side management programs. Battery storage can act on the power system as both a generator when discharging and a consumption point (or “load”) when charging. These approaches all exist and have been well documented. Even so, few utilities or governments have yet compiled a detailed, quantitative pathway to decarbonizing the power sector substantially.
No two markets are identical. Even so, some principles apply widely, depending on the desired level of decarbonization. And in every decarbonization scenario, managing the intermittency of wind and solar power will be crucial. In this article, we describe, in general terms, how integrated power systems—across bulk-generation, transmission-and-distribution, and direct-customer offerings—can achieve up to 100 percent decarbonization by 20403 and the approximate costs.4 Then we consider possible pathways in four types of markets.5 Finally, we suggest how technological breakthroughs could affect these pathways.
On the basis of our research, we conclude that getting to 50 to 60 percent decarbonization is not that difficult technically and is often the most economic option. Getting from there to 90 percent decarbonization is generally technically feasible but sometimes costs more. And getting to 100 percent is likely to be difficult, both technically and economically.
Potential pathways
Reaching 50 to 60 percent decarbonization of the power system by 2040
In most markets, reaching 50 to 60 percent decarbonization can be done with little or no investment beyond that determined by purely rational economic behavior. The costs of solar and wind power and storage—three important elements in all deep-decarbonization scenarios—have fallen so far and so fast that decarbonizing is often the lowest-cost option.
Wind and solar power tend to be complementary, with wind blowing more strongly at night and in the winter, when solar energy is weaker.
The daily cycle of the sun fits well with midrange (four- to eight-hour) storage. The energy stored during the day can be released at night, ensuring a steady supply of power—thus, “solar-plus storage” (the same cannot be said of “wind-plus storage,” because wind is not as predictable). In fact, wind and solar power tend to be complementary, with wind blowing more strongly at night and in the winter, when solar energy is weaker. Markets that have both solar and wind resources are therefore better positioned to manage intermittency.
Achieving this level of decarbonization generally would not materially affect the performance of the power system. Almost all the power created would be used; we estimate curtailment6 of 2 to 5 percent. The utilization level—meaning the percentage of time a plant produces power—of individual fossil-fuel plants would also not be significantly affected, staying at 50 to 60 percent. Some of these assets would be retired, though, displaced as cheaper renewables come on line. Little to no new transmission would be needed. In short, the power system would not need to change much to get to 50 to 60 percent decarbonization.
Reaching 80 to 90 percent decarbonization of the power system by 2040
Getting to 80 to 90 percent decarbonization will generally be more expensive, more complicated,7 and require more market-specific actions. Although no new technologies are required, storage would have to be used for longer periods, and demand might need to be managed more tightly, including through active management of building heating and cooling and industrial-load shifting. Some markets may need new transmission interconnections to pool renewable assets and to share baseload resources across a larger geographic area.
At this level of decarbonization, the system would look noticeably different from how it looks now. We estimate curtailment of 7 to 10 percent because there is so much renewable power being produced to meet demand during lower-production periods. As renewables become more prominent, fossil-fuel plants are utilized less (20 to 35 percent), but many are kept available as backup to cover periods when renewables cannot meet demand.
Getting to 80 to 90 percent decarbonization will generally be more expensive, more complicated, and require more market-specific actions.
At the 80 to 90 percent level, the costs of decarbonization vary widely. In markets with above-average costs of power, there might be a modest decline (1 to 2 percent a year) in total system costs. Other, lower-cost markets might see increases.
Reaching 100 percent decarbonization of the power system by 2040
The path to 100 percent decarbonization gets even more complex, and the lowest-cost options will vary, depending on the market. Most geographies will need to rely on newer technologies to match supply and demand when wind- and solar-power production are depressed. While reaching this level is technically feasible, it could cost up to 25 percent more than the lowest-cost option.8 The path to complete decarbonization of the power sector is fundamentally about filling longer-duration gaps. Accordingly, the cost to decarbonize the last 10 percent of a power system could be significant.
Here are some existing technologies that could help markets close the gap and build a 100 percent decarbonized power system:
The path to complete decarbonization of the power sector is fundamentally about filling longer-duration gaps.
Biofuels. Biofuels, such as landfill gas and biomethane, are net-zero-carbon renewables. But they are expensive, and their supply is limited, so they can only serve as part of the solution, in most cases.
Carbon capture, use, and storage (CCUS). CCUS refers to capturing the GHG emissions produced by burning fossil fuels and then either using the CO2 for other processes, such as enhanced oil recovery, or storing it somewhere safe, such as in deep-rock formations. CCUS has been proven to work but is expensive. Reducing its cost will require finding and making technological improvements and achieving scale efficiencies. Moreover, CCUS cannot capture every carbon molecule, so other technologies will still be needed to get to 100 percent decarbonization. CCUS will likely work best in highly interconnected markets, where space for renewables is at a premium, clean power has value across a larger geography, and CCUS plants can be run at or near full utilization.
Bioenergy carbon capture and storage (BECCS). BECCS is a technology in which carbon-neutral biomass, such as wood pellets and agricultural waste, is burned for fuel, with capture or storage of the resulting CO2 emissions. The net result is negative emissions—meaning that the GHGs are removed from the atmosphere. It is not clear to what extent biomass can be scaled up, and the technology itself is relatively new. One advantage is that retired coal plants can be converted into BECCS plants, lowering capital costs and taking advantage of existing interconnections.
Power to gas to power (P2G2P). P2G2P technology involves using excess electricity to produce hydrogen that can be stored in the gas network and later converted into power again. The “clean gas” created through P2G2P technology enables storage of extremely long duration—weeks or even months. But it is also expensive and inefficient. Ten megawatt-hours of generated power in the beginning makes about three megawatt-hours of usable power by the time it is reconverted back to electricity for consumption. If there is demand for clean gas outside the power sector, however, the flexibility provided by P2G2P technology could go a long way toward integrating intermittent renewables.
Direct air capture (DAC). DAC separates CO2 from the air. It is another negative-emission technology that could be used to eliminate the last few percentage points of carbon-intensive power. The technology has been demonstrated but tremendous amounts of energy are needed to capture, separate, and then sequester the CO2. And doing so is very expensive. Therefore, our findings generally suggest it is not part of the solution for 100 percent decarbonization.
Compared with the scenario for 80 to 90 percent decarbonization, fossil-fuel-plant utilization would need to fall sharply (down to 4 to 6 percent) to decarbonize the power sector entirely. Each market would also need to net its carbon emissions, likely via biofuels, P2G2P technology, or by finding additional offsets. Curtailment would be about the same.
Decarbonization pathways in four types of power markets
Given differences in climate, natural resources, and infrastructure, different markets will need to take different pathways to decarbonize their power systems (exhibit). We have analyzed four types of markets. We selected these markets because they capture most of the globally relevant salient features, including transmission potential, quality of clean resources (both intermittent solar and wind energy and dispatchable hydro and nuclear energy), the starting point of a market’s carbon intensity, and the potential for the distributed network to provide flexibility.
Source: McKinsey & Company
Source: McKinsey & Company
‘Islanded’ markets
“Islanded” markets, as the name implies, refer to islands, such as Hawaii, as well as to places that are unusually remote or isolated. These markets are expensive because they usually must import fuel and lack interconnections. But many islanded markets also get a lot of sun. Because of the falling costs of solar power and the high prices of conventional fuels, most islanded markets do not need incentives or targets to decarbonize. In fact, we estimate that they can get up to 82 percent decarbonization just by transitioning to the lowest-cost power mix available.
Pathway to 90 percent. Ninety percent decarbonization can be attained in islanded markets mostly through a combination of solar-plus storage and wind. Relying so much on intermittent sources, however, would lead to a fairly high level of curtailment (10 percent) and to underutilized fossil plants (9 percent), which would function mostly as stopgaps when renewable generation falls short. Given the relative prices of wind, solar, and fuel imports, this pathway likely represents a substantial decline in costs over the period to 2040.
Pathway from 90 to 100 percent. Unlocking the final 10 percent of decarbonization in islanded markets requires finding carbon-free, dispatchable generation to manage periods of low sun or wind. We believe the best solution for this market archetype is P2G2P. Despite a high marginal cost, P2G2P technology is the cost-effective option for providing dispatchable generation in instances when it is infrequently required. Because the technology can use excess solar or wind power to generate clean fuel, curtailment could drop to 6 percent and power-plant utilization to 4 percent. We estimate that moving from 90 percent to 100 percent decarbonization would increase total system costs 3 to 5 percent by 2040.
Thermal-heavy, mature markets
Thermal-heavy, mature markets typically have large populations, good interconnections, and significant fossil-fuel assets. Their power systems are reliable and accustomed to managing significant load. Germany and the PJM Interconnection, the largest regional transmission organization in the United States,9 are two examples of such markets.
Pathway to 90 percent. Reaching the level of 90 percent decarbonization can likely occur in thermal-heavy, mature markets by building more wind capacity, complemented by significant storage. Curtailment rates should be low (1 percent), while thermal utilization of the remaining plants will likely fall to 20 to 25 percent. The downside, however, is the cost of the transition. Because these markets have substantial existing thermal infrastructure, unwinding the asset base means they are also likely to incur the highest cost of decarbonization of the four market types.
Pathway from 90 to 100 percent. Reaching the level of 100 percent decarbonization in heavy-thermal, mature markets probably means investing in CCUS,10 which is an effective technology when it can run continuously, or nearly so. But the associated capital costs are high. In markets with insufficient physical space to support enough renewable power, CCUS technology may be able to provide a large fraction of baseload power needs. In this approach, thermal-plant utilization would hold steady, around 48 percent, and curtailment would be negligible. But because CCUS plants are so expensive to build, moving from 90 percent to 100 percent decarbonization could increase total system costs 12 to 16 percent by 2040.
Baseload clean markets
Baseload clean markets are those that already have significant zero-carbon baseload power—such as France, with its vast nuclear assets, and Brazil and the Nordic region, with their hydroelectric resources. This gives them a structural advantage. Given their foundation of dispatchable, clean power, they can choose additional generation from lower-cost resources. As a result, these markets are likely to be able to pursue significant decarbonization at little or no cost.
Pathway to 90 percent. Given the availability of clean, dispatchable power, progress toward decarbonization should be relatively inexpensive in baseload clean markets. This archetype builds the most cost-effective source of decarbonized generation—in this case, wind—to reach 90 percent decarbonization. Because of the system’s inherent flexibility, curtailment would be only about 1 percent, and thermal utilization would be 12 percent. The cost of power would rise less than 1 percent over the period to 2040 as wind power replaces some existing thermal capacity.
Pathway from 90 to 100 percent. Unlocking the final 10 percent of decarbonization can be done in baseload clean markets by investing in negative-emission technologies as offsets11 to a small amount of peaking gas capacity that is dispatched when wind production is low and baseload resources are not enough to supply peak demand. DAC is likely to be the lowest-cost option because it is most effective in markets where it is needed only rarely. Curtailment would remain at around 1 percent, while thermal utilization would fall to 3 percent. We estimate that moving from 90 percent to 100 percent decarbonization would increase total system costs 10 to 12 percent by 2040.
Large, diversified markets
“Large, diversified markets” refers to places like California, Mexico, and parts of eastern Australia. Such large markets cover extensive territory and have good potential for renewables—typically, a mix of wind, solar, and, sometimes, run-of-river hydroelectric power. On the other hand, these markets often do not have much clean baseload power.
Pathway to 90 percent. The key technology for 90 percent decarbonization in large, diversified markets is likely to be solar-plus storage, complemented by gas power to help manage intermittency. Thermal utilization would fall to 13 percent, and curtailment would be 14 percent. Our modeling suggests that many of these markets could achieve 90 percent decarbonization by 2040 at a net decline in total system costs, as the costs of solar and storage continue to fall.
Pathway from 90 to 100 percent. Achieving 100 percent decarbonization in large, diversified markets will require overbuilding solar-plus storage, a technology that becomes increasingly inefficient as more power is lost through storage cycling and curtailment. Even when there are high-quality solar resources, the need for consistent day-to-day production challenges the system during occasional low-production periods. P2G2P technology could be the best option for replacing fossil fuels in this type of market. Although it is expensive, it works well when peaking capacity is not needed often. Thermal utilization would fall to 6 percent to cover multiday periods with below-expected solar production; curtailment would increase to 16 percent. We estimate that moving from 90 percent to 100 percent decarbonization would increase total system costs 10 to 12 percent by 2040.
What could change the pathways?
Power-system operators need to think decades ahead. That is never an easy task, and it is even more difficult now, given the fast pace of technological advances and business-model innovations. The pathways we have described, then, are not meant to be narrowly prescriptive. Adaptability and a willingness to change direction will be important in achieving high decarbonization at the lowest possible cost.
If high-cost resources, including those that play little or no role in our scenarios, come into the money and are scaled up, that could change these pathways. In some cases, a cost reduction that puts a higher-cost technology in play could also displace traditional sources of generation. Here is our analysis of how some of these technologies could affect the costs and operations of power systems that seek to achieve full decarbonization by 2040:
Nuclear. If new nuclear plants could be built 20 to 40 percent less expensively, that could translate into 20 percent lower total system costs. At that price, nuclear power could supplant investment in both thermal and renewable sources of generation. We see a clear tipping point at a new-build capital cost of $4,000 to $5,000 per kilowatt compared with $6,000 to $7,000 per kilowatt today.12 At that price, nuclear power begins to outcompete the combination of storage and renewables otherwise needed to reach 100 percent decarbonization.
Transmission. Improved siting, land acquisition, and permitting processes could cut the cost of siting interregional transmission by as much as 40 percent. That could translate into 5 percent lower total system costs.
P2G2P. Improving round-trip efficiency—meaning how much energy is generated up front compared with how much is available for consumption after the conversion cycles—is the most important factor with P2G2P technology. If this improved to 60 percent, from today’s average of 30 percent, system costs could fall 5 percent.
Adaptability and a willingness to change direction will be important in achieving high decarbonization at the lowest possible cost.
Electric vehicles (EVs). Envision a market in which vehicle-to-grid-enabled EVs account for a third of light-duty vehicles on the road. This level of penetration would displace a meaningful fraction of the stationary battery storage that would otherwise be built. Perhaps surprisingly, though, total system costs would only decline about 5 percent because displacing battery storage does not do much to solve the puzzle of achieving the transition from 90 percent to 100 percent decarbonization. The solutions required to reach full decarbonization are of a longer duration in nature than EVs can provide. While EVs are beneficial in overnight balancing, they generally fail to address multiday reliability resources.
CCUS. The potential of CCUS is considerable because it can extend the use of existing thermal-power infrastructure, provide baseload power, and substitute for some generation from renewables. A 60 percent reduction in the cost of CCUS—to $1,050 per kilowatt—could cut 2040 total system costs by 10 percent.
BECCS. The biggest single factor in the use of BECCS is the availability and cost of the biomass-input fuel. If this cost could be cut by 40 percent, BECCS could be commercialized and scaled up. At this price, the negative emissions from BECCS allow unabated-gas plants to run when renewable production is low and still achieve net-zero power-sector emissions, resulting in a total-system-cost reduction of 9 percent.
DAC. DAC technology is nascent and could come down in cost to $1,200 per kilowatt by 2050. That cost needs to go down sharply for DAC to scale up. We estimate that if DAC were 60 percent cheaper, its deployment could reduce total system costs by 3 percent.
Executing a strategy for deep decarbonization
A variety of stakeholders will need to work together to make the decarbonization transition happen.
Utilities and system planners must develop more sophisticated ways of incorporating projected energy flows and consumption patterns into their scenarios. They need to understand how a future energy system could work with the natural-gas network; the potential of behind-the-meter resources, such as distributed energy; the full potential of more complicated resources, such as storage; and the ability to trade off different types of assets, such as transmission, hydrogen, P2G2P technology, and CCUS. In addition, they need to figure out the delicate balance between the investments needed to serve their customers now and the longer-term risk of leaving expensive assets idle—or of massive, last-minute spending to reach decarbonization targets in 2040.
For regulators, navigating this territory means creating market signals and compensation structures that are effective and transparent. This is particularly important given that power systems will be increasingly complicated, with marginal assets dispatching at nearly zero marginal cost and the value of “firmness”—or reliable capacity—growing in significance.
The priority for developers and investors is to think through the implications of deep decarbonization as they plan and build future capacity. They will need to evaluate an increasingly broad range of technologies and infrastructure offerings—from stand-alone solar and wind power to hybrid renewables to transmission to multiple storage types to CCUS and BECCS to P2G2P technology. At the same time, the contracts under which developers operate are likely to be of shorter duration as these markets become more competitive, which will further complicate underwriting.
The road to deep decarbonization will be complicated, and there will be both winners and losers along the way. If decarbonization is done well, however, the benefits could be momentous. Customers will find their costs optimized, companies will create new value from decarbonization, and society will benefit from cleaner air and lower emissions.
Jason Finkelstein is an associate partner in McKinsey’s San Francisco office, David Frankel is a partner in the Southern California office, and Jesse Noffsinger is an associate partner in the Seattle office.
The authors wish to thank Amy Wagner for her contributions to this article.
