Net zero in the power sector: sparks needed

Atradius Economic Research – June 2023

Summary
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The electricity sector holds the key to achieving net zero emissions by 2050. It is one of the heaviest emitting
sectors and has the task of facilitating the electrification of the global economy. The electricity sector will therefore
have to be the first sector to achieve net zero emissions, as early as 2035 for advanced economies. This is a daunting
task, as it requires a total makeover.
Coal energy is still the dominant source of power generation and CO2 emissions. Although coal-fired power is
expected to be drastically phased out, gas-to-coal switching in the face of higher gas prices and a strong economic
recovery after the pandemic are setbacks causing emissions to have resumed an upward trend.
To replace fossil fuel-fired power in the transition to net zero, enormous expansion of renewable energy generation
capacity, electricity grids and battery storage is necessary. The recent energy crisis triggered a welcome
acceleration of investment in renewable energy generation, but the annual global investment shortfall is still large.
Technological innovation is too slow. Much depends on the development of carbon capture, utilisation and storage(CCUS) emission reduction technology that can be applied to coal, natural gas and biomass fired plants, but also toother sectors and applications such as heavy industry and hydrogen production. A failure to develop CCUS could
require vast amounts of additional investment in renewable energy capacity by 2050.
We find evidence that the power sector transition is behind schedule, which does not bode well for achieving theoverarching global net zero emissions target. For many of the highest emitting countries, a significant gap remains
between the desired net zero outcome and the announced policies. Although governments have recently stepped up
their support for the energy transition, especially in the US and EU, we can use more sparks to ignite the greening of
the power sector. More ambitious programs and financial support, both from public and private sources, are needed.

Power transition yet to take off
The energy sector is key to decarbonizing the global economy
and keeping the temperature rise limited to 1.5C in 2100, as it is
responsible for almost three quarters of all emissions. Although
it is becoming increasingly difficult to succeed in reaching this1

GHG will reach net zero later than CO2 emissions because some
hard to abate residual GHG emissions (aviation, industrial
processes, shipping, agriculture) remain.

target, it is still doable, and every attempt to limit thetemperature rise is crucial to keep the earth liveable for future
generations. The Intergovernmental Panel on Climate Change(IPCC) has stated in multiple reports, and reiterated in March
2023, that a rapid and steep reduction in CO2 emissions isurgent, and a substantial reduction of non-CO2 Greenhouse Gas(GHG) emissions is needed to limit the temperature warming to
1.5C1. CO2 emissions related to energy, have the largest share inGreenhouse Gas (GHG) emissions. CO2 emissions have to be
reduced by around 50% by 2030 compared with 2019, and reachnet zero by 2050.
Taking into account the current trend in CO2 emissions, theworld has still a long way to go to reach Net-Zero Emissions by
2050. As one of the first sectors projected to reach net zero
emissions, the power sector is still in the early stages of theenergy transition. So far, its CO2 emissions have only continued
to increase, while a strong emission reduction is necessary to
make the power sector completely emission-free in 2040. In theInternational Energy Agency (IEA)’s Net Zero 2050 scenario, thepower sectors of advanced economies should reach net zero
emissions as early as 2035.
This is particularly challenging, considering that the electricity
sector not only needs to become greener to reduce its own
emissions, but also needs to expand electricity generation andtransmission capacity to make possible the electrification of therest of the economy and the associated explosion in electricity
demand. A delay in greening the electricity sector automaticallymeans a delay in achieving the overall net zero target. So far,also the pace of electrification is slow. Only 20% of global final
energy demand is currently electric (22% for advanced
economies), but the net zero transition path requires a morethan doubling of the electrification rate over the next two and ahalf decades, reaching almost 55% by 2050. Despite large
efficiency gains assumed within the net zero transition path,
this means a doubling of global electricity demand and a 50%
increase for advanced economies.
Many countries have announced, pledged or adopted climate
plans to reduce emissions in the coming decades. These
countries account for about 90% of global GDP and global CO2
emissions, but despite these ambitious plans many are behind
their targets. Even more concerning is that these plans inthemselves are nowhere near ambitious enough to achieve thenet zero transition pathway.

Figure 2: Only three countries have 50% of global emissions
Largest CO2 emitters 2019
80

12

60
8

After a short-lived decline in 2020, global CO2 emissions
rebounded strongly in 2021 and continued their climb in 2022,
reaching the highest level ever. In 2020, the Covid19 pandemic
caused the sharpest decline of CO2 emissions in 20 years due tothe global recession and the drop in energy demand. In
particular, emissions related to oil declined significantly
because of its use in transport, aviation and shipping, the very
sectors that were severely impacted by the pandemic. The hopethat the pandemic would ignite a change and would be theturning point in emissions vanished the following year already.
Figure 1: Emissions resumed their climb

40

6
4

20
2
0

0

CO2 emissions (Gt, rhs)

Cumulative share emissions (%, lhs)
Source: World Bank

Energy sector key in net zero 2050

Annual emissions
60
50
40
30
20
10
0

C02 emissions
Source: IMF

According to the International Energy Agency (IEA) global

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Only three CO2 emitters account for half of global CO2 emissions:
China, the United States and India. Fourteen large economies
contribute to 75% of the total. Most large emitters saw their CO2
emissions rebound strongly in 2021 and continue their growthin 2022. With the exception of last year, China has been thedriving force behind the increase in global emissions. In both2020 and 2021, increasing emissions more than offset the
decline in the rest of the world. Although China showed thelargest increase in renewables use for generating power, thegrowth in electricity demand outstripped the rise in low
emissions sources. Therefore, coal was used to fill this gap, andwas responsible for the increase in emissions.

10

Emissions trend not in line with 1.5C

GHG emissions

energy- related CO2 emissions rose by 6% in 2021 due to theincreased use of coal for power. This gas-to-coal switching also
contributed to the rise in emissions in 2022, reaching a new alltime high of 36.8 Gt. The skyrocketing gas prices after theRussian invasion in Ukraine and the gas price remaining highfor the rest of 2022 fuelled this gas-to-coal switching. The IEA
indicates in its report ‘CO2 Emissions in 2022’ that there were
divergent developments across regions and sectors. At a global
level, CO2 emissions from power and transport increased andmore than offset reductions from industry and buildings. On aregional level, an increase in emissions was seen in the US
where extreme weather led to increasing use of gas in buildings.
In both China and the European Union emissions declined. In
China, there was a slight drop due to the decline in energyintensive industrial production. In Europe, a mild winter,behaviour changes, industrial production and effective energy
conservation measures and fuel switching to renewables
contributed to lower energy demand. A bright spot is seen in theincreasing use of renewables, electric vehicles and heat pumps
that prevented a stronger emissions growth.

As energy is responsible for almost three-quarters of total global
emissions it is crucial to transform the energy sector to limit thetemperature rise to 1.5C. Within the energy sector, electricity
and heat generation is the main emitting sector, followed byindustry, transport and buildings. In this research note we will
focus on electricity and heat – the power sector – because it is
the largest emitting sector and relatively easy to decarbonize, as
alternatives to generate electricity are widely available (windand solar).

Figure 3: Power sector the largest emitter

Figure 4: Coal emissions to drop fast and significantly
Net Zero pathway in power sector, emissions Gt

CO2 emissions per sector, Gt

12

16
14

10

12

8

10

6

8
4

6
4

2

2

0

0
2010

2020

2021

2022

Power

Industry

Transport

Buildings

-2
2021
Coal

2030

2035
Oil

2040
Natural gas

2045

2050

Bioenergy and waste

Source: IEA

Costs of deployment of renewables have decreased rapidly inrecent years and therefore make these a competitive alternative
to coal and gas. Despite this, emissions have only risen further
in the power sector, reaching 14.6 Gt in 2022. As the energy
crisis showed us, the relatively cheap price of coal is still hard toresist. This could remain the case in light of rising global
electricity demand, especially when renewables expansion
remains below expectation. Burning of fossil fuels remains aneasy way to fill this gap for certain countries.

Net zero pathway to 2050
In 2021, the International Energy Agency (IEA) published its“Net Zero by 2050” report in which it provided a detailed roadmap for the global energy sector to reach a net zero energy
system. In the NZE Scenario, the global temperature peaks
under 1.6C around 2040 before dropping to 1.4C in 2100. This isa daunting task as it requires a total makeover of the energy
sector. Since 2021, the task has become even more challenging
as the energy crisis and the strong economic recovery after the
pandemic resulted in a rise in CO2 emissions. This, and taking
into account the latest information about energy markets andtechnologies, was reason for the IEA to come up with an updated
roadmap to Net Zero emissions by 2050. It also reflects concerns
about energy security.2 Although this makes the pathway
narrow, the IEA states it is still achievable.
In the updated roadmap, the IEA foresees a sharp reduction in
CO2 emissions from the energy sector from 36.6 Gt in 2021 toless than 23 Gt in 2030. More than half of this reduction comesfrom the electricity sector where emissions will halve to 7Gt in
2030 and decline rapidly in the years thereafter. In first
instance, coal emissions decline sharply, and natural gas
emissions more rapidly between 2030 and 2040. The
deployment of low-emission sources of electricity will expand
strongly in the NZE. In the NZE scenario, electricity will become
the dominant fuel. The share of electricity in total final
consumption will rise from 20% in 2021 to more than 50% in
2050. Therefore, global electricity generation needs to increase
sharply between 2021 and 2050 due to the electrification of end
users like electric vehicles, space heating and industrial
productions. Low-emission renewables, nuclear power, fossil
fuel power plants with carbon capture, utilisation and storage(CCUS), hydrogen and ammonia will expand rapidly and replace
unabated fossil fuels. Greener electricity will be complemented
by energy savings from energy effiency, material efficiency andbehavioural change.

2

World Energy Outlook 2022, IEA

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Source: IEA

The IEA signals a few key milestones in the electricity sector.
From now, no new unabated coal power plants should beapproved for development. In 2025, nearly 50% of electricity
will be from low-emissions sources. Advanced economies willlead the decarbonisation of the global economy. In these
economies, the power sector reaches net zero in 2035 wellbefore emerging markets and developing economies, whichreach net zero in 2040. The electricity sector will be the first toreach net zero emissions, providing support to other sectors to
cut emissions through electrification. In 2050, renewables will
provide nearly 90% of electricity, with wind and solar providing
70%, and 1.5Gt CO2 captured at power plants annually.

Coal phase-out key in transition pathway
Because of the intensive use of coal in the power sector, phasingout the use of unabated coal for generating electricity is central
in the NZE scenario. In 2021, coal emissions amounted to 10.5 Gt
and accounted for 73% of total emissions in the power sector.
Figure 5: Coal accounts for most emissions
Sources emissions power sector, %
1
22

Coal
Oil
Natural gas

4

Bioenergy and waste

73

Source: IEA

Due to the current crisis, these emissions increased in 2022, but
it is expected that these will decline sharply and the share ofcoal in global electricity generation will fall from 36% in 2021 to
12% in 2030 and to zero in 2040. Of course this depends oncurrent power plants ceasing to provide regular baseload power(minimum required electricity). Because of coal’s constant andreliable characteristic many coal-fired power plants are known
as baseload power plants. Phasing out is not easy, as more than
8,000 coal plants are currently operating in more than 90
countries and providing 2 million jobs. For instance in South
Africa, where coal accounts for over 90% of electricity
generation, the government finds itself in a fine balancing act asto how to transit to a greener electricity mix without hurting the
93,000 people working in the coal mining industry. Therefore,
there should be various options from which policymakers canchoose. These include retrofitting the coal plants with carbon
capture technologies, retrofitting to co-fire with ammonia orbiomass, or retiring them early. Not least, international financial
support to accelerate the energy transition in developing
countries is inevitable.
Natural gas emissions will decline strongly after 2030. In the
updated NZE scenario, gas fired generation will peak by 2025
before starting to decline. In 2021, gas emissions were around
3.2Gt and accounted for 22% of total emissions in the power
sector. The share of gas in global electricity generation will
decline from 23% in 2021 to 13% in 2030 and 0 in 2050. Natural
gas will only have a role in generating electricity if it is withcarbon capture, utilisation and storage (CCUS). In 2050 this will
have a share of only 1% in total electricity generation. In many
economies, gas will remain critical due to its reliability inaddressing seasonal fluctuations. Battery storage of surplus
electricity is also to take off in the NZE scenario. This could
increasingly assume the role of gas to ensure the stability andreliability of the electricity networks.

Different pathways across countries
All countries will contribute to the pathway to net zero by 2050.
That said, the speed of transition will differ. Countries will havetheir own pathways to decarbonizing the power sector
depending on the existing sources, infrastructure, development
and policies. Again, on a global level, the advanced economies
will reach net zero in 2035 and emerging and developing
economies have more time, reaching net zero in 2040.
Figure 6: Annual CO2 emissions electricity generation to NZE
2050
Annual CO2 emissions, Gt
10
8
6
4
2
0
-2
2010

2015

2021

2030

2035

2040

2045

2050

Advanced economies
Emerging markets & developing countries
Source: IEA

Over the years, advanced economies have been reducing
electricity emissions by about 2.5% per year; this should be
promptly accelerated to 13% per year. This in contrast to
emerging markets and developing countries where emissions,with exception of the pandemic-impact, have only increased.
For these economies an even sharper reduction is necessary toreach net-zero in the power sector in 2040. This is a challenging
task because in most of them an increase in electricity demandis expected, which is inherent to the expected increase in thelevel of prosperity in those countries and improved access to thegrid. The largest relative increases are expected in Sub-SaharanAfrica, India and other emerging economies in Asia.

Figure 7: Three polluting countries’ electricity emissions
Electricity emissions per fuel 2021, Gt
7
6
5
4
3
2
1
0
US
Coal

China
Oil

Natural gas

India
Bioenergy & waste
Source: IEA

In the three most polluting countries, China, the US and India,
coal accounts for most emissions in the power sector. Large
steps need to be taken in particular in both China and India toaccelerate the green power transition, as coal is by far thelargest source of emissions there and is responsible for 62% and
73% respectively of generating electricity. This in comparison to
23% in the electricity mix of the US.
This also applies to other polluting countries. As said above,
South Africa is also highly dependent on coal for generating
electricity. Due to its dependency on gas (46% of the power mix),
Russia’s power sector contributes the most to its CO2 emissions.
But also in Japan, the energy transition needs to accelerate.
Here gas and coal have relatively large shares in the power mix,
38% and 29% respectively, and contribute the most to Japan’s
CO2 emissions. One exception is Brazil. Although the country is
one of the most polluting in the world, its electricity mix is quite
green. Renewables account for around 80% of the electricity
mix. Overall, the speed of the energy transition needs toaccelerate to stay in line with 1.5C pathway. The power mix isstill pre-dominantly brown and the phase-out of coal-fired
power is behind schedule.
The World Emissions Clock, which tracks emission reduction
around the world, shows that for the 14 largest emitters there
are major gaps between the emission reduction policies
announced so far by those countries and their NZE pathways(ambition gap). The figure below illustrates this for total
emissions. China has the largest ambition gap, followed by India
and the US. Comparable ambition gaps also apply to thecountries’ electricity sectors. As we will see in the next section,plans to close these gaps, for example via boosting the share of
renewables in the power mix, also fall short.
Figure 8: Large ambition gaps
Total emissions ambition gaps towards 2050, Gt
8

6

4

2

0

Source: World Emissions ClockEven for advanced OECD economies, the question is whether the
net zero goal of halving the use of coal and oil and cutting theuse of gas for electricity generation by a third by 2030 is really

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feasible. Apart from the pandemic related impact, the decline infossil fuel-powered electricity generation has so far been limited(figure 9). Most importantly, despite steady progress, renewableenergy development is not moving fast enough.
Figure 9: Limited decline in non-renewables power
Evolution renewables vs non-renewables power production OECD, Twh
600
500

have not yet done so to come up with targets as well.

Existing targets are not ambitious enoughAmong the countries that have set targets, the ambition levels
differ greatly per country, but are on the whole not ambitious
enough. While IRENA believes that the targets are achievable
based on the current installed renewable energy capacity andthe recent accelerated pace of new capacity additions, they will
only bring renewable energy capacity half way of where it
should be in 2030 under the net zero schedule (figure 10).

400

Figure 10: Installed renewable power capacity
300

Renewable power, installed capacity, Tera Watt (TW)200

12Net Zero RE sharein 2030: 68%

100

Ambition gap

0

Renewables

8

Combustible non-renewables
Source: IEA
4Acceleration of renewables too
slow

Current
RE share
±40%
0
2010

2014

2018

2022

Actual (Irena)

An increase in the use of renewable energy is crucial for bothgreening the energy sector and increasing electricity generation
capacity. Solar and wind are the main drivers behind the
expected growth in renewables, and electricity generated bythese two will almost double (wind) and triple (solar) in the
coming five years. Energy security concerns due to the Russian
invasion of Ukraine constitute a recent catalyzer of thisdevelopment in a number of countries, especially in Europe,
which has revised its renewable energy targets upward. China,
the United States and India are other expected frontrunners in
renewable energy expansion. Yet, even taking into accountthose more ambitious plans, the expected addition to renewableenergy capacity for the coming 5 years still falls 30% short of the
net zero schedule.3 This gap could be as high as 60% if
implemention issues arise (e.g. related to licensing andinfrastructure grid expansion).

Irena targeted

IEA Renewables 2022
Renewable Energy Targets in 2022 – A guide to design, IRENA,
2022

4

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IEA Net Zero

Only about 40% of countries aim for a share of renewables in theelectricity mix that is within (what looks like) an acceptable
range (60%-100%) of the general global target.

Heavy emitters lack ambition
An additional cause for concern is that the world’s heaviest
emitters tend to set unambitious renewable energy targets that
often are also a long way from being met. Of the top 14 heavy
emitters, only two countries (Brazil and Canada) haveintermediate targets (for 2030) for the power sector that areconsistent with the global transition path to net zero and thathave already been met (figure 11).
Figure 11: Only two of the 14 heaviest polluters on target
Renewable energy capacity, % of power mix
Heavy CO2 emitters

3

2030

Source: IEA

Not all countries have targets

Less heavy CO2 emitters100
Net zero target: achieved (intermediate 2030)

Current RE capacity

As achieving the net zero target largely rests on expanding thegeneration capacity of renewables, particularly solar and wind,
it is important for countries to set goals in this area. Eventually
the share of renewables in the electricity mix (in terms of
installed capacity) has to reach around 80% in 2035/2040
globally from about 40% currently. However, according to theInternational Renewable Energy Agency (IRENA), many
countries have not set any targets at all regarding the share of
renewables in the electricity mix.4 Out of 183 countries, only 108
have power-oriented goals, of which only 61 are quantified interms of renewables as a share of the power mix. Although thislack of targets does not bode well for the transition to net zero, it
does not mean that countries without specified targets have so
far done nothing at all on renewables. In fact, there is not muchdifference in current levels of renewable energy capacity
between countries with or without an explicit renewables
target. Nevertheless, setting goals is essential for planningahead and tracking progress. Therefore, as the starting point isstill roughly the same, it is not too late for the countries that

2026

Brazil80

CanadaGermany

Unambitious target: achieved

60

China

40

Mexico Japan
20

RussiaS.Africa Indonesia
Unambtious target: not yet achieved

0
0

India

S.Korea

20

40

S.Arabia
60

US
Net zero target:
not yet achieved(intermediate 2030)
80

100

RE target 2030

Aside from Brazil and Canada, only the US and Germany are
sufficiently ambitious, aiming for 80% of renewables in the
power mix by 2030, but their prospects for implementing thetargets are less encouraging. A best guess from the US Energy
Information Agency (EIA) is that the share of US powergeneration from renewable sources will reach close to 50% by2030.5 Just a year ago, renewable energy generation wasforeseen to account for only 44% of US electricity by 2050. This
upward revision is due to the Inflation Reduction Act, which
took effect in August 2022 and provides a boost of USD 370
billion in public money to a range of clean energy technology
initiatives. However, it doesn’t put the US power sector on a netzero schedule, especially since the EIA doesn’t expect the shareof renewables in the power mix to increase much beyond 2030
under current policies. While Germany is significantly ahead of
the US in renewable energy development, it too is behind the2030 schedule.
Most others have unambitious targets and in most cases don’teven come close to achieving those. For the emerging market
economies among them, such as India, South Africa andIndonesia, the ambition gap may be due to a lack of funding andweaker institutions. The lack of incentives can also play a role.
As mentioned, the coal industry is too important economicallyfor South Africa to give up in the short term. Fossil fuelexporters, including Saudi Arabia, have little economic
incentive to switch to renewable energy production, as theexport potential of renewables, including through hydrogen, is
too small to replace the huge revenues they currently earn fromfossil fuels.6

Where should the acceleration
come from?
Investments in renewable energy have long surpassed those infossil fuel-powered electricity generation and continue to gain
momentum (figure 13).7 The recent environment of high energy
prices makes investments in renewable energy sources evenmore attractive. Last year they reached a record amount of an
estimated USD 470 billion.8 Going forward, it will help that
additional public funding becomes available for investment ingreen technology, for example in the United States via the
Inflation Reduction Act. The energy crisis has been only atemporary setback in the sense that it has led to a revival inglobal investment in the production of oil, gas, and coal, after
falling by more than 10% in 2020. But as of yet, this is notexpected to translate into higher investment in fossil fuel-based
electricity capacity in the remainder of this decade or beyond.
Higher investment in fossil fuel-fired power plants should be
avoided as much as possible, as this will delay the transition to
low-carbon sources and cause a carbon lock-in. In any case, alimited level of investment in fossil fuels (mainly gas) will need
to be maintained to ensure that the phase-out of fossil fuels does
not proceed too abruptly, which could jeopardize energy
security.
However, to be on track to net zero the average annual growthrate for investment in renewables needs to triple in theremainder of this decade from the current rate of about 6%. Sucha strong acceleration is not expected on the basis of the policy
commitments already announced. Even if all thosecommitments materialize we will face an average annual
shortfall of about USD 650 billion in renewable energy
investment in the second half of this decade.

5

EIA, Annual Energy Outlook 2023, March 16, 2023

6

According to the IEA, this is not only due to the much smaller
projected market size of hydrogen in 2050 than oil and gas today,
but also to the fact that many other countries have the potential to

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Figure 12: Investment pathway to net zero

Moreover, expanding renewable energy capacity alone is notenough to achieve global electrification while eliminating
emissions. It also requires huge expansion of electricity grids
and battery storage (figure 13). Grids are already operating at
maximum capacity in various countries, hindering investment
in renewables. Investment in the grids and the development ofbattery storage are also necessary to cope with the increasing
variability of the power supply – a disadvantage of renewableenergy sources. Increasing the generation capacity of green
electricity, expanding the grid and additional battery storage
require a huge investment of USD 60 trillion in total between
2021 and 2050. After electrification of the transport sector, thisis the largest investment in the net-zero package.
Figure 13: Investments need to increase
Average annual global investment in the power sector in the Net Zero pathway,billion USD 2020
2500
2000
1500
1000
500
0
2016-2020
Renewables

Nuclear and other clean

2026-30
Fossil fuels

Grids

Batteries
Source: IEA

Room for innovation
For the electricity sector, innovation seems less important inachieving the net-zero target than for other sectors. The
majority of electricity generation is expected to come fromsources that are already widely used, such as wind and solar.
Nevertheless, in the G7, about 30% of emission reductions by thepower sector towards 2050 must come from innovation. That is,
technologies that are still in the demonstration or protype phase
today.9 This assumption is somewhat worrying, because
innovations are typically surrounded by uncertainty and havelong lead times, often of decades. We don’t have that much time
until 2035 and, according to the IEA, the development period
must therefore be shortened by 20%. The IEA estimated in 2021
that there is a USD 65 billion public funding gap for R&D

produce hydrogen.
7
IEA Energy Investment Report 2022
8
IEA Electricity Sector Tracking Report September 2022
9
Achieving Net Zero Electricity Sectors in G7 Members, IEA, 2021

towards net-zero technologies. Only USD 25 billion wasbudgeted of the USD 90 billion of public money that would beneeded to fund such innovation. While these figures concern theenergy sector as a whole, they also involve key innovations in
the electricity sector.10
One of the promising technologies is floating offshore windfarms. The development of these is expected to fill one third ofEurope's offshore wind capacity by 2050. Another important
net-zero technology application for the electricity sector that isin the demonstration/ early adoption phase is carbon capture,utilisation and storage (CCUS). This is an emission reduction
technology that can be applied to coal, natural gas and biomass
fired plants. There is some criticism on this technology because
it extends the life of carbon intensive power plants. Yet, it is stilla necessary supplementary technology, as additions torenewable power capacity at the current rate are insufficient toachieve the net zero target for the power sector in 2035/2040.
Only some CCUS facilities are online, while most are still in theconcept and development phase, but that number is also small.
Capturing 1,300 Mt CO2 emissions by 2030, as required toachieve net zero emissions, will mean huge acceleration of thedevelopment and deployment of this promising but immaturetechnology (figure 14). The window of opportunity is small,since the CCUS capacity must be increased twentyfold in lessthan 10 years.
Figure 14: Large investment in CCUS needed
Capacity of large-scale CO2 capture projects, current and planned vs. Net Zeroscenario, 2020-2030, Mt CO2 per year
1400

Although just about a quarter of the CCUS will be directly
deployed for electricity generation, a failure to develop CCUS in
the other main applications such as industry and hydrogenproduction would also put extra pressure on the energy
transition of the power sector. Even more renewable electricity
capacity would then be needed to achieve the same level ofemission reduction in all sectors; electricity-based routes forheavy industry would have to be found and the electricity
network would have to be expanded further. If the developmentof CCUS should fail, the production of hydrogen – the designatedenergy carrier for the heavy industry in the net zero scenario –would also need to rely more on renewable energy than on
fossil fuel-based production routes with CCUS. According to the
IEA, to compensate for a potential failure of CCUS development
would require a total of approximately USD 15 trillion in
additional investment in wind, solar and electrolyser capacity
by 2050. This would seem unrealistic given the current
investment shortfall.
Overall, we find plenty of evidence that the power sectortransition is behind schedule. Technological innovation is too
slow, while there is a shortfall in global investment inrenewable energy capacity based on existing technologies.
Meanwhile, coal energy remains the dominant source of power
generation in certain countries. This does not bode well forachieving the overarching net zero emissions target. Althoughsome governments have recently stepped up their support forgreening the power sector, e.g., the US and in the EU, even more
ambitious programs and financial support, from both public andprivate sources, are needed. In particular, some polluting
emerging markets are behind schedule and in need ofinternational (financial) support.

1200
1000
800
600
400

Niels de Hoog, senior economist
niels.dehoog@atradius.com+31 20 553 2407

200
02020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Operating

Under construction

Advanced development
Source: IEA

10Net Zero by 2050 - A Roadmap for the Global Energy Sector, IEA,
May 2021

Atradius Economic Research 7

Afke Zeilstra, senior economist
afke.zeilstra@atradius.com+31 20 553 2873

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