A sector progress tracker for the net-zero transition

| Interactive

As the physical manifestations and socioeconomic impacts of a changing climate become increasingly visible across the globe, it is natural to ask what real progress is being made toward the goal set by the Paris Agreement to limit warming to well below 2ºC and ideally to 1.5ºC. Tracking global emissions provides a direct measure of this progress. It is, however, a lagging measure and says little about the future. Likewise, looking at individual trends can mask underlying complexities. For instance, the drop in the cost of renewables, while real and positive, is not necessarily sufficient on its own to ensure their global deployment.

To limit global warming to 1.5 degrees celsius above preindustrial levels, most transition pathways envision reaching net-zero emissions by about 2050. Tracking global progress is an important part of this effort, and emissions reduction is one key measure of this. But what about tracking the actions that trigger those reductions?

We believe that a more robust way of assessing progress is not only to measure emissions but also to examine the extent to which the underlying requirements for a net-zero transition are being met across categories, sectors, and geographies. Or, in other terms, to combine lagging and leading indicators. This helps us understand whether the world is “on track” (since emission reduction is a decades-long journey) and to identify key action areas that may need attention and acceleration.

To this end, we have created a net-zero transition tracker.1 This initial release represents a beta version, which we hope to refine over time. The ten sectors featured in the tracker—power, road transport, maritime transport, aviation, oil and gas, steel, cement, buildings, agriculture, and forestry—were responsible for approximately 80 percent of the world’s greenhouse-gas emissions in 2019.2 Each sector is ranked on two dimensions: progress and preparedness. The progress score assesses the rate of emissions reduction for each sector (Exhibit 1). The preparedness score ranks sectors according to the key requirements for a more orderly transition (Exhibit 2).

To explore the definitions used, methodology, limitations and potential improvements to this tracker, please see the sidebar below the interactive feature.

To assess Preparedness, each sector has been evaluated on 8 of the 9 requirements for an orderly transition to net zero. These scores are calculated by combining qualitative and quantitative inputs. Qualitative assessments are sourced from a tailored expert survey. Quantitative inputs are taken from publicly available databases. These inputs are combined to form the sector’s final score.

Initial takeaways from our work

The world clearly lags behind in progress and preparedness, but the physical building blocks category of requirements shows promise. As we examine the results of this initial exercise, six key conclusions emerge that point to a need for urgent action and uncover gaps across sectors and requirements:

  1. The net-zero transition is not on track and the world is at risk of falling even further behind. Current rates of emission reductions show that substantial progress is still necessary relative to where sectors need to be today to reach net zero by 2050. Global preparedness to achieve the net-zero transition by 2050 seems to be at less than a third to half the level required under a relatively more orderly transition scenario for most requirements, when the criteria are weighted equally. It would be significantly lower if key dimensions such as financing are weighted more heavily. There are, however, pockets of relative strength within the nine criteria.
  2. Among the eight dimensions scored, technology innovation has the strongest position and is therefore not the gating factor. At the same time, technology is not fully on track either and remains in need of continued acceleration. We define this score using the IEA technology readiness scale, which assesses technologies on a score from 1 to 11, ranging from initial idea to proof of stability reached. Today, technological innovation measured based on this score is not the key bottleneck in most sectors. Indeed, we find that in six of the ten sectors, scores were at commercial demonstration phase or higher, corresponding to a preparedness score of 70 to 100 percent. These scores are based on linear translation of the IEA scale of 1 through 11 to a scale of 0 to 100 percent. When we re-weighted readiness levels to give more emphasis to the later deployment levels of 7 through 11, the scores for all sectors remained above 30 to 50 percent, meaning that progress on this dimension remained further advanced (albeit less so) than on others. Though this is positive, it is important to note that technology innovation measured using this metric does not necessarily equate to full technology deployment readiness. Deployment of technology requires systematic support across most of the requirements, including scalable supply chains, supportive financing, and many of the other requirements described here. It also requires the ability and willingness of companies and customers to support the transition, including via further technological innovation and other measures to bring down costs, close performance competitiveness gaps with traditional alternatives, and in certain cases the ability to shoulder additional costs. In all these areas, as some of our other requirement scores indicate, large gaps remain. Increasing momentum is crucial here to advance in areas where further innovation is needed and to spread technology maturity across all regions.
  3. The categories of economic and societal adjustments and of governance, institutions, and commitments appear to lag significantly behind the physical building blocks category. Indeed, all the underlying requirements in these two categories stand below the 50 percent mark in aggregate and for most sectors. The economic and societal adjustments category faces challenges on both dimensions measured; for example, significantly more financing may be needed for low-carbon technologies.
  4. On the dimensions with relatively higher scores, the challenge is to sustain and accelerate the momentum given rapidly rising needs. For example, the availability of natural resources appears to be relatively better than most other requirements, based on the amount needed for today’s levels of activity (though gaps still remain), but would need sustained action from private players to maintain momentum and meet future demand. To be on track for the net-zero transition by 2030 and beyond, supply ramp-up for eight out of nine key minerals would need to significantly accelerate.3The raw-materials challenge: How the metals and mining sector will be at the core of enabling the energy transition,” McKinsey, January 10, 2022. Unless these supply needs are met or viable alternatives are found, decarbonization efforts in many sectors may stall in the coming years due to supply bottlenecks or price flare-ups. Similarly, as discussed above, it is crucial to continue to innovate to lower costs on key technologies and decrease their dependency on scarcer raw materials.
  5. The dimensions with lower scores would still require a huge and concerted effort, particularly related to supply chain scale-up, capital allocation, and citizen and consumer support. The scale-up of supply chains, capital, and consumer support may need to be substantially accelerated to ensure resilience and avoid shortages and price spikes. Of particular concern are sectors critical for materials—namely steel, cement, and forestry—and for food production (namely agriculture), which have some of the lowest sector scores across all three requirements but especially on capital allocation and citizen and consumer support. It is especially important to manage the ramp-up of low-emissions power capacity and associated supply chains with the greatest care, as energy is central to the global economy and as the net-zero transition involves massive electrification of various end use sectors. Considering capital allocation, momentum has been increasing on climate investment ambitions, but our analysis suggests that climate finance flows have been disproportionately concentrated in the buildings and power sector. New financial instruments and asset classes (for example, venture capital investment in infrastructure, enhanced cross-border finance for developing economies) are needed at scale to drive the magnitude of capital required for the transition. Another area needing concerted action is support from citizens and consumers. Across all sectors, except for cement, which appears to have greater support due to falling operational costs of production from some transition technologies (for example, clinker substitution), experts believe that less than a quarter of consumers would be willing to pay any green premium. This is particularly concerning since citizen and consumer support can be viewed as the most foundational of all requirements. Companies will be faced with rising capital expenditures and operational costs as they transition to low-emissions alternative products. Much more work is needed across the globe to build broad-based support, manage any economic dislocations, and cushion the burdens of any cost increases, especially for the most vulnerable. This may involve concerted efforts toward better coordinated national industrial and energy strategies.
  6. There are immediate near-term actions stakeholders can take to reduce emissions and enhance resilience while driving a more orderly energy transition. We believe that, despite near- and longer-term challenges on the path to net zero, there remain a number of clear and immediate opportunities leaders can and should tap into now, in parallel with working on accelerating the transition. Such opportunities reduce emissions, are relatively easy to implement, and often lower costs and drive energy resilience. Examples include measures to enhance energy efficiency (for example, in the buildings sector or industry), driving circularity and thus reducing both energy and materials usage, and taking steps to limit methane leakages in ongoing fossil fuel production. Such measures are especially critical given the time it will take to raise sufficient amounts of capital (or reallocate capital) from high- to low-emissions assets across industries.
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