Decarbonisation is imperative. The only realistic way to limit global warming and reduce worldwide greenhouse gas emissions in line with international commitments is to transition critical industries to zero-GHG-emitting, decarbonised technologies.

We need disruptive clean technologies that fundamentally change the competitive order and displace existing dominant technology. Think how the iPhone and other smartphones displaced old cellular phones.

Such clean technologies are only disruptive when they find traction in the market, either by bending the cost curve to be cheaper than current alternatives or by creating novel value for which customers are willing to pay a premium. By looking at learning curves, adoption rates and the entry of new businesses, we can forecast whether a disruption is likely.

In our work, we have explored clean technologies in five sectors that generate substantial carbon emissions: transportation, energy, buildings, industrials and agriculture. Our findings offer both optimism and caution.

In transportation, the electrification of vehicles has proceeded apace. There have been marked improvements in battery performance and price, making electric models increasingly competitive with petrol versions.

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In 2017, 16 car companies offered electric vehicles — less than 1 per cent of market share. By 2021, all leading manufacturers were offering EVs and the market share of new sales had risen to 8 per cent. Last year, worldwide electric vehicle sales jumped to 13 per cent of the total, according to the database. Businesses that rely on vehicles should prepare by the end of the decade for a world in which most new cars are electric.

In energy, we have seen significant cost reductions in both wind and solar over the past decade. In 2018, renewables represented 43 per cent of new electricity generation capacity in the US, according to the US Department of Energy. By 2022, these sources accounted for nearly three-quarters of new capacity — driven largely by wind and solar. Globally, renewables captured 83 per cent of new capacity generation, with wind and solar representing 90 per cent of this share, according to data from the International Renewable Energy Agency. In a growing number of regions of the world, wind and solar have become the cheapest forms of electricity.

Volkswagen has set a goal that 80 per cent of cars sold in Europe will be all electric by 2030 © Jens Schlueter/Getty Images

Yet there is reason for caution. We are a long way from 100 per cent decarbonised electricity generation or electrical vehicles on our roads. The intermittent nature of solar and wind production requires significant investment in new transmission lines, smart grid technology and storage such as batteries. These are investments that will take time and require significant private and public sector support.

For other pivotal sectors — such as buildings, industrials and agriculture — green technologies are either available but still too costly to adopt, or are emerging and far from commercialisation. Steel, cement and petrochemicals are significant greenhouse gas emitters and difficult to replace in global supply chains. High temperature renewable energy sources and new green chemistries are nascent and need further investment. Carbon capture and sequestration (CCS) for these difficult-to-decarbonise industries continues to attract investment but is unlikely to see widespread adoption without a formal carbon price.

For buildings, the answer is electrification powered by renewables. Technologies already exist to shift the sector away from fossil fuels. However, retrofitting the inventory of existing buildings is still too costly and financial incentives for developers, building owners, and tenants are scarce and often misaligned.

Harvesting strawberries at a vertical farm in Quebec, Canada © Graham Hughes/Bloomberg

In agriculture, alternatives such as vertical farms, plant-based meats, precision and regenerative farming, genetic crop modification and reduction in food waste hold promise. But they face a highly fragmented, decentralised market requiring change among many thousands of farming operations and millions of consumers.

Fortunately, much has changed in recent years. In the US, there has been a sharp turn towards industrial policy to accelerate decarbonisation — notably reflected in the 2022 Inflation Reduction Act. Government tax credits and other public investments are helping drive down the cost of clean tech alternatives and allow them to compete with fossil fuel on price and performance.

Market opportunities are being created for new entrants and innovators, while risks increase for established businesses that fail to decarbonise. Assessing the policy and market risks and opportunities from decarbonisation should be high among executives’ priorities.

These changing conditions are relevant for businesses not only in core sectors, such as automobiles and electric utilities, but for the entire value chain of companies that rely on them. Consumer and public pressure to decarbonise is causing companies to look to decarbonising not only their own operations but also those of their suppliers. Hundreds of companies have made net-zero pledges for themselves and their supply chains.

Impending changes to accounting rules for climate risks and liabilities will add to the increasing pressure on companies to pursue clean technologies. These reforms are creating market opportunities to advance disruptive clean technologies and build the infrastructure needed to support their growth — from physical infrastructure such as EV charging stations to decarbonisation services in consulting and accounting.

Decarbonisation may be imperative, but it is by no means guaranteed. Ultimately, there is no silver bullet. Each sector is likely to face a different path that depends on the market readiness of green alternatives. These paths will be influenced by the evolving competitive and regulatory landscape. Public policy and private investments are likely to co-evolve as new technologies and business models emerge.

For businesses and policymakers alike, this creates both risks and opportunities. Forward-thinking leaders will understand not only the physical risks posed to business operations due to accelerating climate change, but also the demand, technology and policy risks associated with a decarbonising global economy.

Successful companies understand that disruption creates opportunity. New clean technologies are arising. New clean markets are emerging. The broad digital transformation now taking place, driven by rapidly developing artificial intelligence, is complementing decarbonisation. Smart grid technologies, precision agriculture and autonomous vehicles are all emerging as clean solutions driven by AI.

Transitions seem interminable until the underlying economics align and suddenly disruption accelerates. We are seeing such acceleration in electric vehicles and renewable energy. What sectors will be next? The winners in a decarbonising world will be those who invest in clean technology, pioneer new business models, and pursue the markets of the future. 

Professor Michael Lenox and Batten Institute director Rebecca Duff, of the University of Virginia Darden School of Business, are authors of ‘The Decarbonization Imperative: Transforming the Global Economy by 2050’ (2021, Stanford University Press)

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