Are We Overlooking The Role Of Electrification In Decarbonization?

As we celebrate the festival of lights, Diwali, both in India and around the world, what repeatedly strikes me is the importance of electricity in our lives. Equally critical, but not adequately talked about in public discourse, is that it is the primary channel to reducing global GHG emissions. The better-known strategies like deployment of solar and wind power for electricity generation or use of electric vehicles rest fundamentally on the degree of electrification we are able to achieve over the next few years.

Electrification, in simple terms, is about using electricity to run our devices, vehicles and industrial processes. They are currently run from combusting fossil fuels like coal, oil or gas. Electric cars are an example of electrification. In some senses it is about going back to the old – the first cars produced in the 1840s were electric, before gasoline ones took over in early 20^th century.

Approximately three quarters of global emissions are contributed by the energy sector, as it meets 80% of energy requirements by combusting fossil fuels. However, using electricity to deliver final energy services like lighting, transport, residential and industrial appliances requires 3-4 times less primary energy as compared to combustion processes. Credible agencies like the International Energy Agency and Energy Transitions Commission are therefore broadly aligned that to achieve net zero emissions by 2050, electricity’s share must increase from meeting 2 out of every 10 units of final energy demand in 2020 to 3 units in 2030 and 5.5-7 out of every 10 units in 2050. Globally, this will keep our energy demand down by as 25-30% of what would otherwise be in 2050, equalling China’s current energy demand. Additionally, it is the only way cleaner fuels like renewables and nuclear energy can live up to their potential for de-carbonisation, as these are best suited for electricity generation rather than high grade industrial heat or other similar applications.

Since 2020, the share of electricity in final energy consumption has been stagnant between 20-21% globally. This is a cause of concern, as it risks us falling short of 30% mark that we need to be at by 2030, to stay on course for the net zero trajectory.

Progress has also been uneven across geographies and sectors. We are seeing steady progress in the emerging economies of China, India, Indonesia, Vietnam, Chile and Mexico, but very little progress in the US, the EU, Australia and Africa. There has been a dip in Russia. In terms of sectors, electrification of transport, the sector that has the lowest current rate of electrification in final consumption, has the most momentum currently, with global sales of electric vehicles (EVs) reaching 18% of all cars sold in 2023; the fact that China alone accounts for 57% of global EV sales reflects slow progress in other countries. Buildings is another sector, where there has been progress, with electricity accounting for about 35% of buildings' energy use in 2023, up from 32% in 2010. Industry sector is the laggard globally.

We must place stronger focus on accelerating electrification, given the situation. The current focus is on achieving the COP28 pledges of tripling renewable energy capacity and doubling the rate of energy efficiency by 2030. But these alone are not sufficient to drive electrification; instead any progress on renewables and energy efficiency after 2030 will depend on how much progress we make on electrification ahead of that. Staying on course for electrification targets entails fundamental step up in our infrastructure e.g. we will need to increase 1000 Tera watt hour of electricity production annually for the next 10 years, equivalent to adding another Japan to global electricity consumption each year, as per the IEA. This needs significant lead time – for grids to be added, workforce to be trained, electricity generation projects to be put on ground, institutional set ups to be made fit for purpose, and most importantly, policies and regulations that drive investment to be put in place.

Three energy uses – transport, heating in buildings in colder countries and industries where low to medium temperatures (under 500 degree Celsius) are required must be our targets for accelerating direct electrification in the next few years. Mature and commercially scalable solutions for these, like electric vehicles, heat pumps and electric arc furnaces are already available. We can draw lessons from renewables deployment so far – the main one being that a combination of awareness building efforts, adoption mandates, use of investment de-risking instruments like performance and revenue guarantees, credit enhancements etc and integrated infrastructure planning can spur demand, a dynamic ecosystem of service providers and financiers. The recipe is known; execution is what is needed.

COP29 is an upcoming opportunity to shine spotlight and catalyse global action on collectively tracking the progress on electrification. This is as important as the other potential targets and pledges being talked about – on grids and battery storage. Eventually, this is also a very domestic issue for each of the countries, so this must also be part of the revised National Determined Contributions that are due to be agreed in 2025. Some of the nudges to electrification are in-built in policy packages like the IRA and European Green Deal, but a more dedicated effort is warranted. Clean and efficient electrification is fundamental to decarbonization efforts and deserves significant focus.