Commentary: Why the Energy Industry Must Commit to Decarbonize

Katelyn Baxter is a corporate strategy consultant and adviser. The views expressed here are her own.

The energy industry faces a monumental challenge: how to decarbonize the global economy and reduce greenhouse-gas emissions to mitigate the impacts of climate change. Governments, businesses and other organizations have committed to decarbonizing, but the energy industry is struggling to meet these targets. While targets and the rate at which decarbonization needs to be achieved vary among countries, the Paris Agreement provides much of the overarching guidance.

The current global energy system is predominantly fossil-based, with 80% of the world’s primary energy supply derived from coal, gas and oil. Fossil fuel consumption remains the largest human influence on climate. Climate change is already causing significant environmental damage, including rising sea levels, more frequent and severe weather events and biodiversity loss. Failure to reduce emissions will lead to even more severe consequences, such as food and water shortages, displacement of populations and increased conflict. The energy industry is a major contributor to greenhouse-gas emissions, and failure to decarbonize will result in significant economic, social and environmental costs.

Incentives for cleaner energy

Several factors contribute to the energy industry’s struggle to meet decarbonization commitments. For instance, fossil fuels have long been the dominant energy source, and the infrastructure and technology required to produce and distribute cleaner energy are still developing. As such, non-fossil-based energy sources can be more expensive than fossil fuels and may not be economically attractive for some companies.

Still, alternate energy costs are decreasing, and many renewable energy projects are becoming more financially viable. In some cases, renewable energy sources such as wind and solar can be less expensive than fossil fuels, especially considering the social cost of carbon.

Other variables that can incentivize companies to invest in clean energy include government policies and regulations, public pressure and the potential for long-term cost savings. For example, some governments offer incentives such as tax credits and subsidies for green energy projects. In addition, governments, corporations and other organizations often commit to reducing greenhouse-gas emissions to demonstrate their commitment to mitigating the impacts of climate change. These goals, however, may be difficult to meet without clear plans and strategies, and some companies have begun rolling back on their commitments, especially those involving interim targets. BP Plc, for example, has dialed back its climate targets, while companies outside the energy sector, such as Nestle, have taken similar steps, moving away from carbon offsets and focusing on reducing emissions instead. Decarbonization requires significant changes, including building new infrastructure, transitioning to renewable energy sources, implementing energy-efficient measures and developing and implementing carbon capture and storage technologies. These efforts require significant investments in research and development, infrastructure and policy support.

Technical hurdles exist as well. Some renewable energy sources are intermittent and require energy storage solutions to be viable. Adopting these solutions can be challenging. Additionally, there will always be resistance to change. The energy industry has traditionally relied on fossil fuels, and some companies may be hesitant to reimagine business models and invest in renewable energy. A lack of willingness to embrace this change may also exist at the government level, which can translate to inadequate policy support and funding for renewable energy projects.

Transitioning to a low-carbon economy

To meet climate change net-zero emissions (NZE) targets, scenarios suggest that the energy industry needs to take several actions. First, it is essential for the energy sector to quickly deploy clean energy sources such as wind, solar, hydropower and other nascent technologies. This requires investments in research and development and incentives for companies to finance renewable energy projects. It’s important that the industry implements energy-efficient measures such as building retrofits, improving efficiency and smart grids. Such steps will help reduce energy consumption and thus emissions.

The transportation sector is a significant contributor to greenhouse gas emissions, and electrification of transportation is a key step forward. That said, electric vehicles are unlikely to offer a short-term solution to the marine or aviation transportation sectors. Yet, there are alternatives to electric vehicles, such as hydrogen and biofuels. Ultimately, it will be important for the energy industry to support the deployment of electric vehicles and the development of charging infrastructure. Carbon capture, storage and utilization technologies help to reduce greenhouse-gas emissions from fossil fuel power plants and other industrial processes. Investing in the development and implementation of CO2 removal (CDR) and hydrogen technologies can be used as a low-carbon fuel for transportation and industry.

Transitioning to a circular economy will also reduce waste and enable more resources to be reused and recycled. Making such changes requires international cooperation, and the energy industry must work with governments, businesses and other organizations to share knowledge, technology and best practices that will accelerate the transition to a low-carbon economy.

Challenges aside, there are examples of entities that have successfully implemented decarbonization initiatives. The EU, for instance, set targets to reduce greenhouse-gas emissions by at least 55% compared to 1990 levels by the year 2030 and to achieve net-zero emissions by 2050, implementing policies such as the Emissions Trading System and the Renewable Energy Directive to support the transition to renewable energy sources.

In the corporate sector, large, well-known businesses such as Apple and Walmart have made similar investments. Apple, for instance, has committed to being carbon neutral by 2030. Meanwhile, Walmart has committed to sourcing 50% of its electricity from renewable energy sources by 2025 and has made considerable investments in solar and wind energy projects and energy efficiency measures. Examples such as these demonstrate that decarbonization is possible and that companies, governments and organizations can and must take action to reduce emissions and transition to clean energy solutions.

A commitment to the future

The demand for decarbonization is a trend that cannot be ignored. At the same time, there are numerous challenges to meeting short-term decarbonization requirements. Driven by leadership commitment, the development and execution of strategic action plans are essential and will require discussions about a shared vision for the future, goal setting, investments in renewable energy and energy efficiency, collaboration and partnerships between governments, corporations and other stakeholders.

With almost 20 years of energy industry experience, and having held positions in various international locations, Katelyn Baxter brings her unique insights and perspectives to forming robust and implementable strategies that drive sustainable energy solutions.