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Decarbonisation is an absolute necessity. If we want to effectively combat global warming and reduce greenhouse gas emissions in line with international commitments, we must transition key industries to zero-GHG-emitting, decarbonised technologies.
What we need are disruptive clean technologies that revolutionize the competitive landscape and replace existing dominant technologies. Just think about how the iPhone and other smartphones completely displaced old cellular phones.
These clean technologies can only create disruption when they gain traction in the market. This can be achieved either by driving down costs to make them cheaper than current alternatives or by offering unique value propositions that customers are willing to pay a premium for. By studying learning curves, adoption rates, and the entry of new businesses, we can predict the likelihood of disruption. In our research, we have focused on clean technologies in five sectors that contribute significantly to carbon emissions: transportation, energy, buildings, industrials, and agriculture. Our findings offer both optimism and caution.
In transportation, the electrification of vehicles has made significant progress. Battery performance and price have greatly improved, making electric models increasingly competitive with petrol versions. In 2017, electric vehicles made up less than 1% of the market share, with only 16 car companies offering electric models. By 2021, all leading manufacturers were offering electric vehicles, and the market share of new sales had risen to 8%. Last year, electric vehicle sales worldwide reached 13% of the total, according to the EVvolume.com database. Businesses relying on vehicles should prepare for a future where most new cars are electric by the end of the decade.
In terms of energy, we have witnessed significant cost reductions in both wind and solar power over the past decade. In 2018, renewables accounted for 43% of new electricity generation capacity in the US, and by 2022, that number had risen to nearly three-quarters, primarily driven by wind and solar. Globally, renewables accounted for 83% of new capacity generation, with wind and solar representing 90% of that share, according to data from the International Renewable Energy Agency. In many regions, wind and solar have become the most cost-effective sources of electricity.
However, there are still challenges and reasons for caution. We are far from achieving 100% decarbonised electricity generation or having electric vehicles dominate our roads. Solar and wind power are intermittent, which necessitates significant investments in new transmission lines, smart grid technology, and storage solutions like batteries. These investments will take time and require substantial support from both the private and public sectors.
In other crucial sectors such as buildings, industrials, and agriculture, green technologies are either available but too costly for widespread adoption or are still emerging and far from commercialisation. Industries like steel, cement, and petrochemicals, which are major greenhouse gas emitters, are difficult to replace in global supply chains. High-temperature renewable energy sources and new green chemistries are still in their infancy and require further investment. While carbon capture and sequestration (CCS) for these industries has attracted investment, widespread adoption is unlikely without a formal carbon price.
For buildings, the solution lies in electrification powered by renewables. Technologies already exist to shift the sector away from fossil fuels. However, retrofitting existing buildings is prohibitively expensive, and financial incentives for developers, building owners, and tenants are scarce and misaligned.
In agriculture, there is promise in alternatives such as vertical farms, plant-based meats, precision and regenerative farming, genetic crop modification, and reducing food waste. However, the agriculture market is highly fragmented and decentralized, requiring changes across thousands of farming operations and millions of consumers.
Fortunately, there have been notable changes in recent years. The US, for instance, has shown a significant shift towards industrial policy to accelerate decarbonisation, as seen in the 2022 Inflation Reduction Act. Government tax credits and other public investments are driving down the cost of clean technologies and enabling them to compete with fossil fuels in terms of price and performance.
These changing conditions are relevant not only to core sectors like automobiles and electric utilities but also to the entire value chain of companies that rely on them. Consumer and public pressure to decarbonise is leading companies to focus on decarbonising not just their own operations but also those of their suppliers. Many companies have made net-zero pledges for themselves and their supply chains.
The forthcoming changes to accounting rules for climate risks and liabilities will further increase the pressure on companies to embrace clean technologies. These reforms are creating market opportunities to advance disruptive clean technologies and develop the necessary infrastructure to support their growth, such as EV charging stations and decarbonisation services in consulting and accounting.
Decarbonisation, although imperative, is not guaranteed. There is no one-size-fits-all solution for each sector. The path to decarbonisation will vary depending on the market readiness of green alternatives, which will in turn be influenced by the evolving competitive and regulatory landscape. Public policy and private investments are expected to co-evolve as new technologies and business models emerge. For both businesses and policymakers, this presents both risks and opportunities.
Forward-thinking leaders recognize that disruption brings about opportunity. New clean technologies and markets are emerging. The ongoing digital transformation, powered by rapidly developing artificial intelligence, is complementing decarbonisation efforts. AI-driven solutions like smart grid technologies, precision agriculture, and autonomous vehicles are all emerging as clean alternatives. Transitions may seem never-ending until the underlying economics align, and suddenly disruption accelerates. We are currently witnessing such acceleration in the electric vehicle and renewable energy sectors. Which sectors will be next? The winners in a decarbonising world will be those who invest in clean technology, pioneer new business models, and embrace the markets of the future.
Professor Michael Lenox and Batten Institute director Rebecca Duff from the University of Virginia Darden School of Business are the authors of “The Decarbonization Imperative: Transforming the Global Economy by 2050” (2021, Stanford University Press).
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