Countries across the globe are taking strides forward to drive companies and consumers to reduce greenhouse-gas emissions with a view to avoiding catastrophic climate change. Many have begun to implement policies to achieve their goals, including setting a growing number of ‘net-zero’ targets. The report titled ‘G20 Zero Carbon Policy Scoreboard’ by BloombergNEF evaluated the efforts of G20 countries in achieving decarbonisation held against the goals set out in the Paris Agreement. REGlobal presents an extract of the report…..
1. Introduction
Just over five years ago in Paris, governments agreed to keep the global average temperature increase this century to below 2 degrees Celsius and make efforts to limit warming to 1.5 degrees. The last two years have seen a surge in governments pledging to reach net-zero emissions. As a result, such targets are now in force in countries and states that accounted for 35% of greenhouse-gas emissions in 2016 – up from just 10% a year ago. Now, many governments have begun to implement concrete policy measures to realize these goals – some with success, some less so. With that in mind, this report outlines the main findings of the Zero-Carbon Policy Scoreboard – BloombergNEF’s evaluation of the G20 countries’ policies to spur climate action, highlights successes and points to where improvement is needed.
• The 19 countries covered in this report have been scored out of 100% based on 122 qualitative and quantitative metrics that encompassed the number and types of policies implemented, including by state or provincial governments for the U.S. and Canada, and by the EU for the bloc’s member states.
• We then assessed the ‘robustness’ of each country’s policies as applied to six sectors – power, low-carbon fuels and carbon capture & storage, transport, buildings, industry and the circular economy. The evaluation took account of the transparency and predictability of the process, completeness of the policy mix, ambition and achievability, impact and contribution toward the country’s targets.
• Other, entirely quantitative metrics were used to evaluate the effectiveness of a country’s policy regime, such as sales of electric vehicles (EVs) or heat pumps and share of renewables in a country’s total electricity generation.
2. Lessons Learnt
There is obviously no one-size-fits-all policy solution for deep decarbonization. That said, in the process of this evaluation we did observe some broader trends that have the potential to be applied across multiple nations and sectors.
Overarching targets should be ambitious but realistic
•Governments often kick off their decarbonization policy-making processes by setting long-term goals for emission reductions. This is the case for the countries in this report, all of which have long-term targets of varying levels of ambition.
•Some have also produced roadmaps or strategies for specific technologies to, for instance, build certain volumes of renewable energy capacity, add certain numbers of electric vehicles (EVs) to roads, or produce a certain number of tons of ‘green’ hydrogen. These can signal a government’s intentions to the market and highlight potential investment opportunities.
•However, targets are generally only effective if they are both ambitious enough to require significant change and realistic enough not to be meaningless. Examples of the latter include Saudi Arabia’s target for 27.3GW of renewables capacity by 2024 and 58.7GW by 2030. As of year-end 2019, the country had just 0.4GW installed. Targets must be paired with concrete follow-through policies
• Moving a technology from the research phase to commercialization typically involves crossing at least one ‘valley of death’ when developers face high cash demands but lack capital. Historically, there have been two critical locations where capital shortfalls have come into play: at the first, earliest stage when a technology is ready to exit the lab, and during deployment and diffusion, when the challenges of commercialization come to the fore.
• In General, higher-scoring countries have introduced support for overcoming the first-stage valley, in particular R&D funding programs.
• The countries in this report have a range of such programs in place to support newer energy-transition technologies and approaches such as low-carbon hydrogen (eg, Germany’s ‘Reallabore der Energiewende’). carbon capture use and storage (CCUS – eg, the U.S. R&D program), and process-emission savings (eg, EU Research Fund for Coal and Steel).
• The second valley, between product development and early commercialization, is a crucial point for policy support. At this stage, governments should go beyond one-off programs to provide ongoing support to help technologies achieve this transition – eg, such as EV purchase subsidies, renewable power feed-in tariffs or grants for heat pumps. These should enable the technology to ramp up deployment, in order to prove viability at scale and bring down costs.
• These incentives may be allocated via administrative procedure (in the same way as in the early days of renewable feed-in tariffs in Europe). Alternatively, they may be based on competition-based mechanisms, as in Brazil and India for renewable power and are being considered for low-carbon hydrogen production in Europe. The former approach may strengthen investor certainty of future support, while the latter tends to, but does not always, bring down costs for government.
Decarbonizing entire sectors requires policy cocktails
• There is no silver bullet for decarbonizing entire sectors of an economy; governments must pursue multiple pathways to achieve substantial emissions cuts. In the power sector, for instance, renewables can reduce emissions but systems with large wind/solar shares will also need access to flexible resources like storage.
• Countries that score highest in our survey tend to have the most complete policy frameworks per sector. For example, some of those in the bottom quartile may only have implemented policy support targeted at the ‘easier’ and cheaper decarbonization pathways, or they may have failed to promote infrastructure build-out.
• Even those in the top quartile fell into this trap: Germany’s building renovation program introduced in 2016 helped improve energy efficiency. However, the country lags on metrics such as low-carbon heating, with 75% provided by oil and natural gas in 2018.
True decarbonization means abandoning fossil-fuel subsidies now
• Decarbonization is fundamentally inconsistent with subsidizing the production or consumption of fossil fuels. G20 countries provided $584 billion of such support annually 2017-19. This undermines their zero-carbon promises and policies by distorting markets while increasing the risk of locking in emission-intensive assets for decades to come.
• Removing fossil-fuel subsidies is often politically challenging. But a minority of support goes directly to consumers: nearly half of the G20 total was allocated to oil and gas production and another fifth to fossil-fuel-fired power generation. Even consumer-specific subsidies as currently structured often fail to benefit the most vulnerable citizens.
When carrots aren’t tasty enough, sticks may be required
• Generous fiscal and financial incentives have in a number of cases proven effective at spurring decarbonization efforts. This has included feed-in tariffs or tax benefits that kick-started wind and solar deployment (but are less needed today since those technologies have come down in cost).
• However, if governments are unwilling to offer sufficiently generous ‘carrots’ to sectors to decarbonize, they must instead consider ‘sticks’. This can mean mandates or bans to force system change and can include abolishing coal-fired power, requiring biofuel blending, dictating buildings-energy intensity levels, or mandating recycled-content use.
• It helps if these mandates are binding and imposed on specific players (eg, electricity suppliers), rather than a whole sector or country where there is no clear penalty for non-compliance. Mandates can also be gradually increased over time (with future changes announced well in advance to give industry time to respond).
The broader policy-making context is critical
• Several countries in the survey scored lower because their policy-making processes lack transparency and fail to invite sufficient stakeholder input, or because their governments make irregular, unexpected changes to policies. Mexico is a prime example of such unpredictability and this has hurt its renewable power market.
• Other examples from this report are unexpected delays to renewables auction programs (eg. Turkey and South Africa) and to policy delivery (e.g., Australia’s National Electric Vehicle Strategy and the U.K.’s Energy White Paper, which was finally published in December 2020).
No sector is an island – joined-up approaches are best
• Substantial interdependencies exist between sectors, especially when deployment of one technology is at least somewhat contingent on the deployment of others. Most notably, to ensure electrification of end-use sectors such as heating is accompanied by decarbonization, a power system must become greener. It will likely also mean other changes for the electricity sector such as the need for more flexible resources.
Decarbonization requires infrastructure proliferation
• The world will need some 290 million charging points by 2040 to serve the growing EV fleet, BNEF estimates. This amounts to $111 billion of investment in public charging for passenger and commercial vehicles alone over the next 20 years. Other sectors will require similar, or much larger, levels of infrastructure build-out to decarbonize sufficiently.
• Countries such as Germany, the U.K. and China have incentives in place to spur such infrastructure deployment. But governments will have to grow their support in coming years, particularly those seeking to facilitate use of hydrogen or CCUS. A complete conversion of the world’s power sector to zero-carbon will mean trillions in investment in transmission.
…and well-trained people
• Deep decarbonization will require a virtual army of millions of skilled workers to build out the required infrastructure. A key obstacle both to growth and to emissions reduction today in some sectors is the lack of qualified personnel. This is particularly true in the buildings and agriculture sectors currently but stands to become a bigger challenge in other areas in coming years.
• The U.K.’s Green Homes Grant scheme, introduced in September 2020 as part of the government’s Covid-19 recovery measures, provides funding for energy-efficiency upgrades. However, activity has been delayed due to a lack of contractors with required certifications.
• Achieving a major efficiency scale-up, for example, requires a large, skilled workforce, meaning governments should offer funding for training and certification. Information campaigns targeting homeowners are also required and can be tied to financial support. Governments should establish and expand organizations to provide this information.
3. Global Issues
3.1 International Climate Diplomacy
Relevance of Paris Agreement
Coordinated action by multiple countries could accelerate efforts to address emissions and take steps to adapt to a warmer planet. The United Nations Framework Convention on Climate Change (UNFCCC), established in 1992, is the main forum for international action on climate change. Its overall aim is to stabilize greenhouse-gas concentrations in the atmosphere at a level that will prevent dangerous human interference with the climate system. The 197 signatory parties to the UNFCCC meet on an annual basis at the Conference of Parties (COP) to assess progress and make further decisions. However, this progress has been slow, in part due to the requirement for unanimity on all agreements and some parties’ seeming unwillingness to compromise.
One of the UNFCCC’s biggest achievements to date was the Paris Agreement, adopted in 2015, which aims to keep global average temperature increases this century to below 2 degrees Celsius. As the first truly global agreement on climate change, its inception was a diplomatic achievement in itself. Its design is deemed an improvement over the Kyoto Protocol as it enables signatories to agree on the broad direction of travel but to choose different strategies and protect their own interests. In contrast, the Kyoto Protocol took a top-down approach, with only certain parties taking on an emission-reduction target.
Each party that has signed and ratified the Paris Agreement was meant to submit in 2020 a new nationally determined contribution (NDC) – non-binding plans detailing how it intends to cut emissions and adapt to climate change. NDCs are reviewed every five years, through a ‘pledge, review and ratchet’ cycle (Figure 10). The first cycle started when parties’ first plans were pledged in 2015, at COP21 in Paris. Now, five years on, countries are due to unveil more ambitious plans. However, 71 had submitted a new or updated NDC by year-end 2020, representing some 28% of global emissions. Governments may well cite the effects of the Covid-19 pandemic, which also delayed the 2020 UN climate summit (COP26) by a year. The first and second NDCs submitted to date are insufficient to keep warming to within 2 degrees.
3.2 Fossil fuel subsidies
Another important global issue affecting countries’ policy efforts to reduce emissions is fossil fuel subsidies, which can be broadly defined as any government measure that makes fossil-fuel production or consumption more economically viable than other energy sources. In essence, they act as a negative carbon price. Subsidies can take a number of forms, from lowering the price paid by an electricity consumer, to providing grants to oil companies for drilling.
Some governments are undertaking fossil fuel reforms and are often find the process both slow and difficult politically. However, such support mechanisms distort markets and risk carbon ‘lock-in’ – whereby assets funded today will be around for decades, locking in high levels of future emissions. Fossil fuel subsidies may be designed to ensure security of domestic energy supply, to protect vulnerable consumers or to support jobs. However, other mechanisms – eg, renewables incentives and ‘just transition’ policies – can meet these needs as well, without the same lock-in risk. There is also evidence that fossil fuel subsidies tend to benefit wealthier consumers rather than the targeted vulnerable groups.
3.3 Carbon Pricing
More governments than ever are pricing greenhouse-gas emissions with the aim of having polluters cut output. Absent a carbon price, polluters nothing for the costs their emissions impose on the environment, although in some schemes, they can pass on the carbon costs down supply chains. There are two main ways for governments to price carbon: market-based mechanisms such as emission-trading systems (ETS) or taxes. In a market, prices tend to start low and rise over time, allowing companies to adapt to their changes in cost, without a sudden shock to consumers. However, if the price remains too low (or concessions are too generous), the carbon price will have little effect on participants.
3.4 Carbon Leakage
Governments with ambitious climate goals will need to look across their economies for emissions-reduction potential, including sectors exposed to international competition. However, this raises concerns of ‘carbon leakage’ whereby a company moves operations to markets with lower environmental compliance costs (eg, no carbon price). If this occurs, then a carbon price or other policy has failed to reduce global net emissions – it has simply shifted them to another location.
As a result, governments implementing a carbon price have often granted concessions to companies deemed to be at risk of carbon leakage. These may take the form of lower tax rates, or a share of ‘free allocation’ in the case of emissions trading schemes such as the EU and South Korea market
3.5 International Travel Emissions
The Paris Agreement and NDCs do not cover emissions from international aviation and shipping – i.e., journeys that depart from one jurisdiction and arrive in another. Instead, parties have opted to work through the International Civil Aviation Organization (ICAO) and International Maritime Organization (IMO) to reduce these international emissions.
Some parties, namely the EU, may opt to take unilateral action as they consider that ICAO and IMO negotiations are not fast or ambitious enough. The European Commission has been ramping efforts to bring emissions from international aviation and the maritime sector under the EU ETS. It launched in July 2020 a consultation including the option to bring back international carriers into the EU ETS – a proposal that caused an uproar in 2013.
3.6 Sustainable Finance
The deployment of capital in support of projects or companies with carbon-reducing attributes – sustainable finance – has the potential to make climate contributions for years or even decades to come. The private sector can play a crucial role in a transition to a low-carbon economy, by ensuring that financial instruments stack up environmentally and are aligned with international climate targets.
Sustainable debt describes borrowing activity via loans and bonds that are used to promote environmental or social improvement. Some instruments raise money to finance or refinance green or social projects or activities. Others are used to promote institutional sustainability targets and goals.
The uptick in sustainable finance over the last few years could signal that cash is flowing in the right direction for parties to achieve their various NDCs under the Paris Agreement. However, there remains a lack of clarity in the sector on the precise definition of ‘green’, even though transparency and credibility are key to the growth of the sustainable debt market.
4. Sector Results
4.1 Power
European nations top the table for policies to promote clean power, as ambitious targets, stable auction programs and the EU Emissions Trading System provide clear investment signals to the market.
The main findings regarding policies to decarbonize the power sector were as follows:
• G20 countries have implemented more policies to decarbonize their power systems than they have to clean up other segments of their economies. Power’s sizeable share of emissions has made it a priority and affordably priced renewables have eased policy making. Collectively, the G20 scored higher (58%) addressing power emissions than other sectors.
• The G20 have adopted varying approaches, which could be replicated elsewhere, with some local tailoring. Government-run reverse auctions for clean-power delivery contracts are among the most common. Best-scoring countries provide market participants transparency and certainty about how and when such tenders are held.
• Even countries with significant renewables deployment must adapt policies to evolving market conditions to ensure sustained progress. This could mean measures to ensure operating renewables projects are shielded from major power-price “cannibalization”, or schemes to incentivize flexible resources to balance the growing share of variable generation.
• While markets such as China, the U.S. and Europe have significantly reduced the carbon intensities of their power systems, the sector remains a major emitter overall. Moreover, power’s decarbonization stands to be even more important as governments promote electrification as a means to cut emissions from other sectors, such as transport or heat.
• Some countries have policies with conflicting goals as governments seek to appease different stakeholders. For example, Germany – a renewables leader – plans to keep coal online until 2038. We await to see whether China, South Korea and Japan will continue to support coal build in light of their recently announced net-zero targets.
4.2 Fossil Fuel Decarbonisation
The U.S. secures top spot for its effective and wide-reaching federal and state-level incentives for bioenergy and CCUS. Germany and France are runners-up, with well-developed hydrogen plans.
The main findings regarding policies to spur a shift to low-carbon fuels and CCUS were as follows:
• Liquid biofuels have the most mature market of the technologies in this note, as is reflected in the level of policy support. The most common types of incentives are demand-side targets or regulations, which have proven effective in the U.S. and Brazil. Some countries have seen less growth due to lack of ambition or compliance.
• Similarly, biogas policies to date have mostly centered on demand. Several G20 countries also aim to support farmers and rural development. France has the most developed policy mix in this area, including targets and incentives to promote production and consumption of biogas and biomethane.
• Electricity and combined heat and power remain the dominant end-uses for biogas. But given competition from wind and solar power, governments should promote consumption by industry, buildings and heavy transport instead. They should also incentivize sustainable feedstock, as some governments (eg, the EU) have done, while others (eg, Brazil) have not.
• Over half of the G20 has plans to produce and/or consume hydrogen. But few have introduced explicit hydrogen policies, beyond some pledges for electrolyzer installations of varying levels of ambition. Governments should implement dedicated fiscal and financial incentives, to promote pilot and demonstration projects by cutting capital costs and risk.
• For CCUS to realize its full potential, financial incentives are needed to promote deployment and bring down costs. One reason why the U.S. is home to two-thirds of global carbon-capture capacity is the 45Q tax credit and additional policies at state level.
4.3 Transport
China, France and Germany rank the highest of the G20 countries for road transport. All three have implemented robust policies, which have driven electric vehicle (EV) sales.
The main findings regarding policies to decarbonize the transport sector were as follows:
• Transport – as one of the fastest-growing sectors in terms of emissions – has been a focus of policy makers seeking to spur decarbonization. In particular, electrification, especially of road transport, has attracted the most attention in the past five years and will likely play a key role in achieving significant emission reduction in this sector.
• Policies lowering the upfront costs have been the most effective tool for driving early-stage adoption of passenger EVs and are offered in most G20 countries. These will likely remain necessary until EVs reach upfront price parity with internal combustion engine (ICE) vehicles.
• On top of such incentives, countries with high EV adoption have also implemented stringent fuel economy targets. China has one of the world’s most aggressive fuel efficiency regulations as well as the New Energy Vehicle (NEV) credit program, which aims to stimulate EV supply by allocating annual production mandates to automakers.
• Some countries (eg, Japan, South Korea) have such goals but they are too weak or not binding, to drive change. The U.S. – previously a leader on EV sales – have seen deployment stall due to weakened fuel economy standards and limited model availability.
• The U.S. also lacks charging infrastructure – an area where governments play an important role. Most G20 countries offer some support, varying from home charging grants and public investment, to deployment targets or obligations on petrol station operators.
• Three of the G20 countries also plan to phase out sales of ICE vehicles. Yet few governments have followed up such announcements with concrete implementation measures, with no clear penalties for missing these targets.
4.4 Buildings
Germany ranks highest for buildings thanks to a large-scale renovation program and steady decline in the use of fossil fuels for heating. But decarbonizing buildings across the board has a long road ahead.
The main findings regarding policies to decarbonize the buildings sector were as follows:
• The top-scoring countries have implemented strong support for a particular decarbonization strategy – eg, renovations in Germany, heat pumps in Japan and electric heating in France. However, one-track approaches will be insufficient to achieve climate goals, especially for countries with net-zero targets.
• Energy-efficiency goals are relatively common in the G20 but are not enough to drive significant improvements in practice. One option is to introduce financial incentives, as seen in Europe and Japan, although these have a mixed track record. Regulation can be more effective, but is rare in practice, especially for existing buildings and rented properties.
• Low-carbon technologies like heat pumps could play a significant role in building decarbonization. Yet most G20 countries do not provide enough policy support to overcome their high upfront costs. Other barriers may also require policy attention – e.g., feedstock constraints for bioenergy and infrastructure needs for hydrogen and district heat networks.
• Decarbonizing buildings will also require policies that increase technical knowledge across the value chain – from consumers to installers to energy suppliers and equipment manufacturers. In the near term, a lack of qualified installers could slow uptake (as seen in the U.K., for example) or even lead to insufficient demand.
• Not all G20 countries have significant space heating demand. India was at the top of the list among warmer nations. It was the first in the world to introduce a national cooling action plan, although the scheme lacks details on implementation and financing.
4.5 Industry
Germany and the U.K. have the highest scores for industry. But there is an overall dearth of policy to promote decarbonization in this area: industry had the lowest average score of the six sectors.
The main findings regarding policies to decarbonize the industry sector were as follows:
• There are good reasons why cutting industrial emissions will be difficult: many sectors face significant international competitive pressure and are important to the local economy or have carbon emissions inherent to their production processes.
• Even so, governments with net-zero ambitions need to take action, as policy requires time to take effect. In addition, industrial equipment has especially long lifetimes and, in some countries, (eg, Germany) a sizeable share is approaching the end of its useful life. Clear decarbonization policies can set investment signals for new assets and replacements.
• Half of the countries in this report price carbon emissions from at least some industrial sectors. But these programs have yet to drive significant abatement as the levies may be too low (eg, Japan and Argentina), are only paid on a share of emissions (eg, in Canada) or because companies have benefitted from substantial free allowances (eg, South Korea).
• Nearly two-thirds of the G20 countries have implemented energy-efficiency incentives, although potential savings are quite limited. Some of the most effective schemes (eg, India and China) have comprised binding targets plus financial incentives.
• With sectors reliant on high-temperature heat, governments could increase funding to promote deployment of industrial-scale electrification options. More R&D funds would also accelerate commercialization of techniques to cut process emissions from industrial activities.
• There is also little support for lower-carbon fuels or CCUS, although a few G20 countries (eg, the U.K., Germany and South Korea) have begun to fund hydrogen and CCUS demonstration projects at industrial clusters. Governments could also introduce green product mandates, although few policy makers have taken this step so far.
4.6 Circular economy
South Korea secured pole position for circular economy policy, closely followed by Japan, the U.K. and France. Spurred by limited space for landfill, they were all early adopters of waste reduction measures.
The main findings regarding policies to promote a shift to a more circular economy were as follows:
• The aim of a circular economy is to reduce waste and prevent materials at the end of their useful life from harming the environment. However, making the global economy more circular would also lower emissions, for example, by promoting re-use or recycling of materials.
• The G20 countries vary significantly in terms of the extent and stringency of their circular economy policy support. Spurred by limited space for landfills, Japan, South Korea and European nations were all early adopters of waste reduction measures such as high tipping fees and extended producer responsibility schemes to fund recycling.
• However, policies focused on waste prevention, re-use and recycling are more effective than those that merely dictate rules around recovery and landfilling. Enforceable measures like taxes and mandates also tend to drive more change than ‘soft’ targets.
• For example, programs that charge households based on the volume and type of waste have proved effective in South Korea and Japan, while the U.K. and EU are leading the world in terms of mandates requiring that certain products contain a certain share of recycled material.
• Some G20 countries like South Africa and Saudi Arabia have only the most basic policies, while others such as China and Argentina have yet to translate ambitious plans into law. Alternatively, rules may be poorly enforced, or there could be a lack of strong policy at the national level, leaving subnational governments to take the lead, as in the U.S.
• China’s waste-import ban, which spurred other countries to follow suit, has accelerated the move to a circular economy. Governments could further these efforts with waste-export bans, to spur domestic recyclers to expand capacity, as seen in Australia.
4.7 Focus Section – Agriculture
The main findings regarding policies to decarbonize the agriculture sector were as follows:
• Agriculture, which accounts for a 12th of global greenhouse-gas emissions, will be challenging to decarbonize: most farms are small and cash-constrained but employ a significant share of workers in certain areas. Assets like tractors have long lives.
• The EU’s Common Agricultural Policy – one of the most comprehensive packages in the sector – has seen limited support for decarbonization. One reason is because funds are distributed based on land ownership rather than how it is used. However, ongoing reforms could boost the policy’s contribution to climate action.
• Efforts to reduce livestock emissions could have the biggest impact on climate mitigation in the sector and a range of strategies – at varying levels of deployment – is available. Mandates and financial incentives are some of the most common policy types to tackle livestock emissions, such as those in Canada and Europe. But more are needed.
• Fossil fuels remain the dominant energy source on farms, especially in developing countries, and there is little dedicated support. However, some clean energy or efficiency programs are open to farmers, especially schemes focused on energy access/resilience.
• There is even less policy support for electrified transport as well as technical, practical and financial barriers. In some countries, some farming activity still relies on manual labor or animals, although governments are working to promote mechanization.
• Over-use of (subsidized) fertilizers has driven up emissions in developing countries. Subsidy programs are underway but can meet political resistance. Another approach would be to support agricultural strategies or new products that involve less (or no) synthetic fertilizers.
• A significant barrier to climate action is a lack of awareness and understanding in the sector. Governments should therefore implement training, certification and knowledge-sharing networks, as seen in China and New Zealand.
The above article has been sourced from BloombergNEF and can be accessed by clicking here
