4 Shifts Needed to Create a Carbon-free Power System

Avoiding the worst impacts of climate change will require a drastic shift in the global power system as the world moves from fossil fuels to carbon-free electricity. While the technologies and investments that can get us there are now available, it will be necessary to dramatically speed up efforts and do so more equitably to create a decarbonized energy system.

Fossil fuels still dominate electricity production: 76% of electricity is from polluting fossil gas, coal, and other fossil fuels. These sources generate 23% of the world’s greenhouse gas emissions, and in 2022, the power sector’s emissions continued to grow by 1.8%. 

Not only will it be necessary to change the existing system, but we also must bring modern, clean electricity to the 733 million people who lack access. Demand for carbon-free electricity is already growing — 1 in 7 new cars are now electric — and it will only increase as transportation systems are electrified to reduce gasoline and diesel fuel pollution. But these positive developments aren’t happening fast enough. 

Transforming the world’s power system won’t be easy, but it’s essential. Replacing fossil fuels with renewables like wind and solar, providing energy access worldwide, modernizing grid systems and improving energy efficiency, among other actions, are critical for creating an equitable and sustainable global power system — one where people, nature and the climate can thrive.

Systems Change Lab analyzes the latest science and data to determine the current state of progress in global energy system decarbonization. We track four major transformations that are essential for creating a carbon-free, equitable power system:

1) Phase Out Unabated Coal and Fossil Gas Electricity Generation

Coal is the most carbon intensive way of producing electricity: it is responsible for almost 70% of all power sector emissions. It spews pollutants like mercury (a toxic heavy metal), nitrogen oxides (key contributors to smog) and soot. That’s why retiring coal power plants, halting construction of new plants and a global phase out of unabated coal power is essential.

Coal’s share in electricity generation reached about 37% in 2019 before the COVID-19 pandemic and has continued to grow globally, largely due to rising energy demand, especially in coal-reliant countries such as China and India.

In order to limit warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit) and prevent some of the worst impacts of climate change, our data analysis shows no more than 2.5% of global electricity can come from unabated coal (burned without the use of carbon capture equipment) by 2030. All unabated coal power should be halted by 2040.

That means the share of coal in electricity generation must fall 6 times faster than in recent years. Recent data do not indicate we are close to this pace globally, although some countries such as the United Kingdom have seen rapid declines.

Absolute coal consumption and the share of coal on the grid appear to be diverging, but not quickly enough: After the share of coal-fired electricity generation plateaued during the pandemic, generation increased  by 8% in 2021 and grew another 2% in 2022 — though this may be a temporary response to the energy crisis in 2022-23 after the Russian invasion of Ukraine.

Phasing out unabated fossil gas-fired electricity production is also important, as it contributes a quarter of power system emissions. Our analysis shows that power generation from unabated gas should be phased out by 2045 and earlier (by 2035) in wealthy nations. The share of fossil gas in electricity generation rose continuously until 2019 — reaching 24% before the COVID-19 pandemic — and has since slowly declined to 22% in 2022. In terms of absolute generation, it more or less plateaued, showing that it’s still not headed in the right direction.

2) Rapidly Scale Up Zero-carbon Electricity Generation

The transition to renewable energy is fundamental, especially given that decarbonizing other systems such as industry, transport and buildings will rely on the availability of zero-carbon energy. Fortunately, renewable power costs have dropped by 75% over the past decade, making it possible to scale renewable technologies. Worldwide, renewable energy capacity tripled between 2000 and 2020, and almost two-thirds of the power generated from wind and solar is now more cost-effective than the cheapest fossil fuel.

Wind and solar still provide a relatively small proportion of electricity generation overall, at 10% in 2021, but the growth is at a near-exponential rate. Solar photovoltaic generation grew almost 25% per year over the last five years and wind generation grew 14% per year. To keep the world on track to limit warming to 1.5 degrees C (2.7 degrees F), the limit scientists say is necessary for averting some of the most disastrous climate impacts, zero-carbon sources should supply virtually all electricity by 2050. At high concentrations, wind and solar require a power system transformation that includes the ability to manage variable production by creating grids, storage and firm power that can support the wind and solar.

One challenge to achieving a zero-carbon power system is the significant growth of total power generation, which almost doubled from 2000 to 2022. Electrification of other systems like industry or transport are likely to continue to drive growth, as well. Fortunately, 83% of all new generation capacity added in 2022 was renewable, and the share of zero-carbon power seems unlikely to stop growing anytime soon.

Strong policy support is central to the growth of renewables, and this support is increasing across the globe. In 2022, the United States passed the Inflation Reduction Act, which creates new tax credits for zero-carbon power technologies and provides over $30 billion in new funding sources for zero-carbon power and associated technologies like transmission and energy storage. In early 2023, the European Union responded with its Green Deal Industrial Plan, which similarly aims to boost zero-carbon electricity with regulatory changes and new funding for projects. China, however, continues to lead the world in spending on zero-carbon energy subsidies, totaling $546 billion in 2022 (although unlike the U.S. and EU legislations this also includes spending on electric vehicles).

3) Modernize Electric Grids, Scale Storage and Manage Demand

Today’s electricity grids are mostly designed around relatively few large power plants. However, future grids dominated by wind and solar will have smaller, distributed power sources, in addition to large utility-scale projects. This diverse portfolio of resources requires a new approach to power management, grid infrastructure and storage capabilities.

While modernizing these systems will also have to account for increased demand from electrifying sectors such as transport, industry and home heating, there are opportunities for more efficiencies, too. Interconnections between separate grids will provide balance and access to locations with the best renewable energy potential.

Energy storage is one solution to variable supply and demand. Electricity produced by variable renewables can be reinforced by the deployment of large utility-scale batteries and investment in vehicle-to-grid and building-to-grid power.

Utility-scale batteries typically do not provide the same long-term storage potential as pumped storage hydropower — currently the largest storage technology at scale — but battery storage requires less space and is becoming much cheaper. As a result, from 2016 to 2021, utility-scale battery storage capacity grew at an average rate of 50% per year. And while there were supply chain challenges (in particular, a lithium shortage) in 2022, there are significant efforts around the world to scale mining and diversify supply chains to prevent disruptions and price volatility.

Increasing lithium mining does have significant risk of environmental impacts, with the potential to contaminate groundwater and worsen local air pollution without improved mine management and governance. In addition to improving mining, other energy storage solutions are also available and vying for market share, like thermal energy storage, hydrogen fuel cells and other types of battery chemistries that do not rely on lithium.

Investment in transmission lines, which bring power across long distances from the plants where it is generated to where it is needed, will be key to ensuring wind and solar farms are located where they can collect the best resources. In 2016, $104 billion of capital was allocated to transmission grids across the world. That investment declined to $88 billion by 2019. Yet, data from 2020 show a 3.3% rise with investments reaching $91 billion, indicating that investment in this piece of the puzzle could be starting to head in the right direction. Indeed, this data does not account for new investments such as those pledged in the Inflation Reduction Act in 2022.

Distribution lines, which bring power to people’s homes and businesses, are also important to ensure everyone has reliable access to electricity. Worryingly, investment in distribution grids is decreasing. In 2016, $203 billion was invested into distribution systems across the world, and this has decreased by an average of 5% per year, reaching $168 billion in 2020.

On the demand side, targeted pricing changes that increase or decrease with power demand could encourage customers to shift their consumption to off-peak hours to help smooth out demand and require less drastic ramping up and down of power plants throughout the day.

Increasing energy efficiency in everything from home heating and cooling to electric cars will also reduce peak demand on the electricity grid. Saving megawatts through energy efficiency measures means fewer megawatts of power generation are needed.

4) Ensure Energy Access and an Equitable Transition for All

Access to affordable, reliable and clean energy is a fundamental right that enables people to access critical services, enhance opportunities and develop economies. Although an additional 1.14 billion people have gained access to electricity over the past decade, there is still a long way to go:  Electricity access remains below 25% in some countries such as South Sudan, Malawi and Niger, and many more people have unreliable service. In 2020, some 733 million people were still living without electricity.

A lack of reliable electricity can be debilitating: Households cannot consistently meet their daily needs and industries and businesses cannot function efficiently. Additionally, the worsening effects of climate change, such as extreme heat, necessitates more mechanical fans conditioning that requires reliable electricity. There is an economic impact, too.  For example, frequent power failures cost Pakistan around $18 billion each year, equivalent to 6.5% of their GDP.

Under the UN Sustainable Development Goals, world leaders are committed to achieving universal electricity access by 2030. Today’s projections indicate that without further action, they will fall short of this goal: 672 million people would still be without access in 2030. As of 2019, 103 countries submitted strong electrification plans that contain targets, implementation plans and identify institutions to set the strategy. Reaching the goal will require more coordinated action and more financing: According to the International Energy Agency, it requires about $35 billion between now and 2030.

Electrification will likely play out differently depending on country and regional context. Access to larger power grids will make sense in some places, such as in parts of West Africa due to its high population density and existing power system configuration. Elsewhere, mini-grid and off-grid sources, supported by strong regulatory frameworks, will be the best option. Encouragingly, the adoption of mini-grids is growing rapidly, with the number of users more than doubling between 2010 and 2019.

Combining Shifts for a Sustainable Future

Transforming the power system from coal and gas to zero-carbon sources requires careful, rapid action and investment that can deliver change at scale, and which all must happen together.

Time is of the essence and global coordination cannot be delayed to phase out unabated coal and fossil gas electricity generation; rapidly scale up zero-carbon electricity generation; modernize electric grids, scale storage and manage demand; and ensure energy access and an equitable transition for all.

Together, these shifts can create a world powered by energy without emissions, where all people have access to safe, affordable electricity.