Mapping the Transition to Net-Zero Emissions in 2050

The United States has committed to achieving net-zero emissions by 2050. What does a low carbon economy look like and how will the energy transition be financed? Researchers at Princeton University take a detailed look at potential transition pathways and the capital required to decarbonize.

By GreenPortfolio Team

May 24, 2021

electricity powering NYC

The scope of the challenge

The United States under the Biden Administration in April committed to a target of achieving net zero emissions by 2050. The scale of the transition will have effects across the economy, according to a comprehensive study by researchers at Princeton University: two-thirds of the final energy demand is currently fossil fuel based and achieving net-zero emissions will require a combination of technology, infrastructure, capital, and effective policy. The study, titled Net-Zero America, maps out five potential pathways for the US that draw upon a combination of electrification, energy efficiency, zero-carbon fuels, and carbon capture and storage. For each of the pathways, energy costs as a percentage of GDP are comparable or slightly above current spending levels but remain below historical levels.

 

The study provides a response to key questions around the potential impact of a low carbon economy on energy costs, land use, employment, and health, by modeling the effects at a granular level for each decade of the transition and for each US state. All pathways that are detailed will require significant capital mobilization – estimated at $2.5 trillion by 2030 – and “historically unprecedented rates of deployment of multiple technologies” according to the report’s authors who emphasize the urgency around making practical decisions and investments in the near term.

Energy Demand: Electrification as a key pillar

One of the key pillars to achieving a low carbon economy will be electrification. Electricity is easier to decarbonize than liquid and gaseous fuels and inherently leads to lower final energy use due to its relative efficiency. The five Net-Zero America pathways utilize one of two scenarios for electrification. High electrification (E+) assumes near complete electrification of buildings and transportation. In this scenario, by 2050, 96 percent of light-duty vehicles, 85 percent of residential buildings, and 90 percent of commercial buildings are electric. End use demand for electricity increases 90 percent while final energy demand declines 32 percent by 2050. The second scenario assumes slower electrification (E-). By 2050, 61 percent of light-duty vehicles, 70 percent of residential buildings, and 70 percent of commercial buildings are electric. End use demand for electricity in the scenario increases 50 percent and final energy demand declines 23 percent.

Energy Supply: Renewables as a dominant source of energy

The five pathways draw upon a combination of energy sources along with one of the two electrification scenarios. The first pathway looks at the scenario of high electrification combined with few constraints on energy sources, which include renewable energy (wind and solar), nuclear energy, fossil fuels, and carbon storage (E+). A second pathway outlines slower electrification similarly with few constraints on energy sources (E-). The third pathway includes increased use of land for biomass primarily for use in transportation that is not electrified in the slower electrification scenario (E- B+). The last two pathways utilize the scenario for high electrification – one with constraints limiting renewable energy growth to historical levels (E+ RE-) and one where only renewable energy is used (E+ RE+).

 

Irrespective of the energy sources or electrification scenario used in the pathways, all increase the share of carbon-free electricity from 37 percent today to between 70 and 85 percent in 2030 and achieve nearly carbon-free electricity by 2050. In all the pathways, fossil fuel use declines – between 62 and 100 percent – and renewable energy becomes a dominant source of energy. Wind and solar account for a significant share of energy in each of the pathways – accounting for between 85 and 98 percent of the supply by 2050 – with the exception of E+ RE- pathway where the growth rate of renewable energy is constrained. In this pathway, wind and solar still compose 44 percent of energy, more than four times the current share of 10 percent.

 

Land use associated with the growth of wind and solar will be significant and could potentially pose a challenge. The study outlines in detail the potential land areas nationally that can be used for wind and solar developments and the capital required by each state to achieve it. In addition, the study looks at increased transmission capacity required to connect these sites with major cities.

 

Overall employment in the energy sector as a share in the economy grows in the transition. While employment and wages in the low carbon sector surpass those lost in transition away from the oil and gas sector, policy will need to consider how to re-train workers in fields that are no longer active as well as to train new workers to match the greater demand for workers.

Financing the transition to a low carbon economy

Globally, investment in the transition towards a low carbon economy is underfunded, according to the IEA. This is also the case in the United States, which will need to invest at least $2.5 trillion over the next decade to achieve net-zero targets. Recent estimates put annual spending around $74 billion, with most coming from the private sector.

 

With the election of the Biden administration in the 2020 election, the US federal government has committed to a net-zero transition and to providing capital and policy towards realizing this goal. The American Jobs Plan, the infrastructure bill proposed by the Biden administration in April 2021, lays the groundwork for a low carbon economy through clean infrastructure investments and removal of tax incentives for the fossil fuel industry. The bill outlines spending on grid updates, retrofitting buildings, and electric vehicle infrastructure. In addition, the bill signals the importance of mobilizing private investment, establishing a clean energy accelerator, providing tax credits for investments in the grid infrastructure, and utilizing the federal government purchasing power to increase transmission of clean energy across the market

 

The private sector will play an important role in providing capital achieving carbon neutrality and effective public policy will be important to helping mitigate risk for private investors in new markets. The report cautions on the potential challenges of providing adequate capital investments and aligning public support.

A word from one of the report's authors

Chris Greig, a Co-Principal Investigator on the Net-Zero America Report and Senior Research Scientist at Princeton University’s Andlinger Centre for Energy & the Environment, shares thoughts on the policy and investment decisions needed to overcome challenges to achieving net-zero emissions.

How does the American Jobs Plan, the Biden administration’s proposed infrastructure bill, align with the findings of the Net-Zero America study?

Overall, I think the Jobs Plan and associated infrastructure proposals align very well with the Net-Zero America Study, and if delivered, could place us firmly on a path to net-zero emissions. It is also clear that the Plan aims to assure that costs and benefits are shared equitably, which will help reduce unintended social problems and political backlash.

However, translating that Plan into the thousands of assets and supporting infrastructure that need to be in place and operational in 2030, presents huge challenges. The project development and decision sequence to conceive, design, permit, finance, build and commission all of these assets, will need to be streamlined, compressed, and de-risked. This will need strong, hands-on involvement of federal agencies and state governments working in close cooperation and sharing certain risks with private developers and utilities.

 

What is needed to better mobilize private capital to help finance the transition to net-zero?

The key challenge for capital mobilization, in my view, is to debottleneck the pipeline of project proposals through the development sequence to final investment decisions (FID). These early-stage investments in the development sequence hold the highest level of risk and uncertainty and tend to be funded exclusively with developers’ balance sheet equity. The government could help mobilize this pipeline by incentivizing the entry of typically risk-averse funds like pension funds to participate earlier in the development sequence.

 

What role can individuals play in the move towards a low carbon economy?

Ultimately, top down leadership and asset investment decisions by governments and corporates are necessary, but individuals also play a crucial role in their own decisions: from the purchase of personal assets like vehicles, home heating systems, and other appliances; to the choices we make in diet, waste disposal, travel and a host of other day to day activities; to our support for renewable energy and infrastructure developments in our local neighborhoods and regions. At a population level, this really matters, and clusters of abstinence or resistance have a habit of spreading, so it’s important for us all to commit.

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