Goldman Sachs Research Highlights Key Shift in Global Net Zero Journey

Turning Point in Decarbonization Efforts

Goldman Sachs Research indicates that the global economy’s drive towards net zero emissions has reached a critical turning point. The cost dynamics of clean technologies like solar and batteries have experienced notable shifts in 2023, with some technologies becoming more expensive while others are now more affordable, potentially enhancing the overall affordability of decarbonization.

2023: A Year of Cost Fluctuations in Clean Technologies

Goldman Sachs’ Carbonomics cost curve analysis for 2023 demonstrates the impact of reduced fossil fuel energy prices on renewable energy costs. Rising interest rates have increased construction expenses, particularly in the offshore wind energy sector. Conversely, a decline in battery costs and scaling up of electric vehicle production has enhanced economic viability.

Michele Della Vigna on Clean Technology Affordability

Michele Della Vigna, a leader in Natural Resources Research at Goldman Sachs, points out a significant shift towards the affordability of clean technology. He anticipates that the deflationary forces in solar and battery sectors will prevail, making decarbonization more attractive to consumers.

Cost Curve Trends and Sectoral Changes

The 2023 Carbonomics cost curve shows a consistent flattening since 2019, with the cost of removing 75% of emissions remaining unchanged from 2022. However, there is an observed increase in costs in the lower half of the curve, primarily due to rising interest rates and cost inflation, leading to a 25% increase in the renewable power sector. Meanwhile, improvements in battery costs have made high-cost decarbonization in the transport sector more affordable, with a 30% reduction in costs.

Policy Support and Future Investments

Looking to 2024, the level of policy support for decarbonization, especially the $500 billion through the Inflation Reduction Act (IRA), will be crucial. However, political uncertainties and delays may impact project timelines. Della Vigna expects increased investment in accessible and cost-effective decarbonization areas, particularly solar installations and electric vehicles.

Challenges in Achieving Climate Goals

Despite these advancements, Della Vigna notes that current investments might not suffice to keep global warming within the 1.5 degrees Celsius target. Over the past year, global emissions have risen, and coal demand has surged, signaling a deviation from the required path to meet climate objectives.

Significant Announcements at COP28

At the COP28 climate conference, three key announcements stood out, according to Della Vigna:

1. The substantial green capital expenditure in the Gulf Coast region, estimated at over $600 billion over the next decade.
2. A commitment to ramp up renewable power generation, with the IEA’s updated Net Zero Roadmap indicating that tripling global renewable energy capacity by 2030 will lead to significant emission reductions.
3. The Oil and Gas Decarbonization Charter by 50 companies, aiming for zero methane emissions and ending routine flaring by 2030.

These developments and insights from Goldman Sachs Research underscore the complex and evolving landscape of global efforts towards net zero emissions, highlighting the need for strategic investments and policy support.