Ahead of the curve: A new analysis on maximizing our climate technology investments

Cheap renewables change the calculus around EVs and electric heating.

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Making the smartest investments to combat climate change doesn’t just involve crunching the costs of dozens of technology choices today. It also requires an understanding of how changes to one part of the overall system — the power grid, transportation, industry, buildings or land use — will alter today’s cost and carbon-reduction calculations, whether that’s looking a few years or a few decades ahead.

That’s why the analysts at Evolved Energy Research and their supporters at the Environmental Defense Fund are hoping their latest revamp of a classic analysis of the costs of combating climate change will catch on with policymakers.

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It’s called a marginal abatement cost curve, or a MAC curve for short. But unlike previous well-known MAC curves, namely the McKinsey curve,” it accounts for a far greater set of interdependencies between a technology’s cost to deploy today and its potential to abate a ton of carbon from entering the atmosphere, depending on what else is happening to the world in which it operates.

Technologies analyzed in the curve range from money-makers today like energy efficiency and wind and solar power, to those getting closer to cost parity like electric vehicles and heat pumps, to those like carbon capture and storage that are still decades away from cost-competitiveness.

This curve looks quite a bit different from the one released by consultancy McKinsey & Co. back in 2006. This now-famous graphic has since become a common reference for which technologies policymakers and industries should concentrate on first for cutting greenhouse gas emissions most cheaply and which must be brought down in cost before they can be scaled up.

Image credit: McKinsey & Company

The problem with McKinsey’s MAC curve, according to the new report, is that it doesn’t capture the complexity of the real world, where changes in one sector of the economy can rapidly alter the cost of interventions in other sectors and vice versa.

Morgan Rote, a senior manager at the Environmental Defense Fund, noted that McKinsey itself acknowledged the limits of its analysis back in 2006. One key limit was that it considered the energy system at a fixed point in time,” she said, whereas the energy system we’re looking at now is going to look very different 30 years from now.”

MAC curves that fail to capture these interdependencies can lead decarbonization investments down the wrong track — particularly when it comes to making decisions today that will take decades to play out.

Failing to capture how one set of interventions affects others at low levels of decarbonization isn’t that big of a deal,” Jamil Farbes, a principal at Evolved Energy Research, told Canary Media. But as the world pushes toward reducing carbon emissions to zero and removing carbon from the atmosphere, these interdependencies are the whole ball game.”

A key finding: Electrify as much as you can with clean energy

A couple of things have happened in the past 15 years to allow us to take a much better look at these interdependencies,” Farbes said. Vast increases in computing power allow much more sophisticated approaches to modeling the interdependency of key relationships that bear on the cost of different carbon-cutting measures.

Evolved Energy’s MAC curve 2.0,” which sets a net-zero carbon target and then models the technologies needed to get there, reveals an array of interventions that can cut massive amounts of carbon emissions at relatively low costs. Some, such as making buildings more energy-efficient or building the most efficient wind and solar power, can be done at a net savings, in terms of the cost of replacing dirtier technologies with cleaner ones.

Image credit: Evolved Energy Research

In terms of findings, the curve largely reinforces those of similar studies from the past few years. Those include last year’s study from UC Berkeley, GridLab and Energy Innovation that modeled a cost-effective path to reach 90 percent carbon-free electricity by 2035 and December’s multi-pathway analysis of how the U.S. could reach a net-zero carbon economy by 2050.

One of the biggest revelations is how the rapid decarbonization of electricity generation with ever-cheaper solar and wind power can alter the carbon-reduction value of electrifying vehicles, building heating and industrial processes.

The level of emissions reductions you can get from electric vehicles depends tremendously on the renewables deployments you can get in the next 20 years,” Rote said. The earlier models don’t really look at that” because they used snapshots of the contemporary carbon-intensity of electricity.

With a clean enough grid, even significantly more expensive electrification options like electric boilers for industrial applications all of a sudden have a lot of impacts on our decarbonization goals,” she said. It does show that you can get halfway to net zero in the energy and transportation sector at very low cost,” which is a target of the Biden administration, but only if you first do a well-orchestrated deployment of renewables.”

Image credit: Evolved Energy Research

That’s not to say that these low- or no-cost technologies have a clear path to rapid growth. Non-cost” barriers range from the challenge of permitting and interconnecting vast amounts of wind and solar to the grid, to market incentives to encourage consumers to buy technologies like heat pumps that still cost more upfront, even if they save money over the long haul.

Pieter Gagnon, senior energy systems researcher with the National Renewable Energy Laboratory, noted in an interview earlier this month that these kinds of long-term synergies are hard to capture with older modeling methods.

By looking forward and taking into account the anticipated building of new generators in response to new load, we can recognize that electrification is cleaner than if you ignore that fact,” he said.

Evolved Energy collaborated with utility industry and Department of Energy researchers on NREL’s latest Electrification Futures Study, which shows the increasing carbon abatement cost-to-value ratios of electrifying transportation and heating. That’s important information for policymakers trying to assess the relative carbon-reduction impact of electric vehicle incentives or how industry groups measure the emissions impact of electric versus natural-gas boilers, to name two examples.

This is something that everyone knows” intuitively, Gagnon said. This is just a quantification of that and allows decision-makers and corporate actors to act on that intuition.”

The importance of investing for the long haul

At the same time, it’s important to capture what the report refers to as the diminishing returns of marginal measures.” Simply put, there’s a limit to how far the lower-cost technologies can get us and a point at which adding more of them doesn’t do as much good. The most obvious example of this is the limit of adding more and more wind and solar power to a grid already saturated with them.

Each new gigawatt of generation replaces less and less dirty power, and at some point, the variability of wind and solar requires backup from batteries or other forms of firm, dispatchable energy to ensure enough power is available when the wind isn’t blowing and the sun isn’t shining.

One of the mistakes people have made with MAC curves like McKinsey’s is to think of it as a supply curve,” Farbes said — looking at the curve of a list of technologies to deploy to the uttermost before moving on to the next one. We’re going to do this [least expensive] thing first, and then the next one, and then the next one.”

But Evolved Energy’s analysis, like many other more sophisticated models in recent years, show the importance of investing in longer-term, innovative technologies today,” Rote said, to ensure they’re ready to deploy by the time the cheaper marginal interventions have reached their saturation points.

These technologies include generating carbon-free hydrogen from renewable energy, as well as using clean power to create net-zero carbon liquid fuels. Long-range sea and air transport, long-duration energy storage for power grids, and many industrial processes will need these resources to replace fossil fuels.

Image credit: Evolved Energy Research

We do hit a point where we’re starting to run out of anything that’s cheaper,” Farbes said. Luckily, there are synergistic effects” to using increasing amounts of wind and solar energy to power these processes when that electricity isn’t needed on the grid.

At the far end of the net-zero carbon journey, direct air capture technologies will be needed to reduce the lingering impact of atmospheric carbon dioxide built up over the past decades since carbon dioxide lingers in the atmosphere for about a century.

Image credit: Evolved Energy Research

The fact that these technologies are far more costly than renewable energy today — and the fact that many are being pursued by fossil fuel industries — has led some to criticize government support for them as diverting scarce resources from investing as much money as possible today in clean electricity. But as the following chart from Evolved Energy’s report indicates, they’re all going to be needed to reach the final target of a net-zero economy.

Image credit: Evolved Energy Research

Once again, this reliance on the most costly technologies at the far end of the decarbonization journey is something you don’t get from the older approach” to MAC curves, Farbes said. When you see how they interact, it really matters. As we get to a more and more stringent reduction, there’s a more important role for all of those things.”

(Lead image: Tim Marshall)

Jeff St. John is the editor-in-chief of Canary Media. He covers the technology, economic and regulatory issues influencing the global transition to low-carbon energy. He served as managing editor and senior grid edge editor of Greentech Media.