The Carbon Impact Curve: Unpacking the Energy Transition's Complexity

The early days of the energy transition held a comforting promise. Replacing fossil-fuel generation with renewables offered a seemingly straightforward equation: investment directly correlated with carbon reductions. One Euro of investment equalled one unit of carbon displaced. This was our "Carbon Impact Curve," a clear metric of progress.

Alas, the curve has taken some unexpected turns. As the transition progresses, it's increasingly evident that each Euro invested delivers diminishing carbon displacement. The question is, why? The answer lies in a growing web of complexity that was perhaps underestimated.

It's in the Details

This imagined Carbon Impact Curve now reflects many factors: grid constraints, demand-side management, the emergence of new technologies, market dynamics, and the often unforeseen consequences of well-intentioned policies. These variables don't merely exist alongside one another – they create a dynamic tangle, their impacts rippling throughout the system. This means our decarbonisation efforts, however robust, risk delivering a less-than-ideal return on investment. One Euro of investment is now displacing far less than one unit of carbon.

In an era of finite resources, we must focus relentlessly on where our investments will have the greatest long-term impact. The thought process behind the Carbon Impact Curve, while growing more nuanced, will be essential for gauging the effectiveness of our actions.

Variables Shaping the Curve

Some of the complexities at play include:

• Intentional Actions: From constructive moves like Scope 3 emissions monitoring to potentially counterproductive policies like excessive emphasis on supply chain localisation.
• Unintended Consequences: Sectoral policies working at cross-purposes, such as:
  • Electrifying transport without a robust plan to replace lost petrol taxes, recoup charging infrastructure costs, or adequately offset potential subsidies.
    
  • Build hydrogen electrolysis infrastructure, yet omit plans to utilise the 30% waste heat from electrolysis for district heating.
  • Failing to adopt high-resolution (e.g. minutes-based) energy system analyses, leading to suboptimal technology choices and idle, costly assets.
• Ideological Roadblocks: "Green Purism" that disregards pragmatic solutions. An example is to eliminate natural gas outright, rather than leveraging it as a transitional tool for faster progress towards net-zero.

Note that these categories interact. Consider how preferential treatment for battery storage, though vital for balancing grids, risks cannibalising investment in other essential technologies like transmission or flexible thermal generation. Such unintended outcomes inflate system costs, ultimately flattening the Carbon Impact Curve.

Real-World Proof Points

Fortunately, we don't have to navigate this maze blindly. Take our recent study of Poland's energy system overhaul. Moving beyond siloed approaches, we modelled sector coupling to integrate power and heating, paving the way for a shift away from coal. This holistic view promises to slash costs by €3.8 billion and eliminate 20 million tonnes (42%) of CO2 emissions by 2032.

Likewise, our analyses in several markets from the Americas to Europe and Asia consistently show that understanding the true system costs and operating in shorter market intervals optimises the energy technology mix.

Essential Takeaways

• Pragmatism is Paramount: While combating Climate Indifference is vital, Green Purism can be just as obstructive. Prioritise actions based on practical outcomes, not just ideological purity.
• Embrace the System: The Carbon Impact Curve will only grow more complex, but it remains our best tool for understanding how decisions reverberate in a resource-constrained world. Invest in data and analysis to make informed trade-offs.
• Measure to Manage: Granular, real-time data forms the bedrock of sound policy and market design. High-resolution visibility unlocks maximum decarbonisation potential.

The energy transition isn't a lost cause – it's simply more multifaceted than we first imagined. We can accelerate our journey towards a truly zero-carbon future by embracing the concept of the Carbon Impact Curve as our guide through this complexity.

Watch Louis Strydom discuss this topic at the Economist Energy Transition Summit: 

Written by

Louis Strydom

Director, Growth & Development, Europe & Africa