towards a low-emission norwegian industry 10. 20. 40. 30. 0. 50. 60. 1990. 95. 2000. 05. 2010. 15....

Towards a low-emissionNorwegian industry

We are constrained by a CO2e budget

790

1,060

939

1985 -2015

2016-2100

1750-1985

3,670

~900

2 °C carbon budget

Non-CO2, 2015-2100

2 °C carbon budget till 2100

Reserves

~900

Equivalent industry budget

3000-5400

~250

Coal

Oil, conventional

Oil, unconventional

Gas, conventional

Gas, unconventional

Emissions implied by fossil fuel reservesBillion tonnes of CO2e

Carbon budget emissions to 2100Billion tonnes of CO2e

At 13 Gton/yr, budget will run out within 20 years

Globally, cement, steel and chemicals sectors produce most of the emissionsGt CO2/yr per emission source, 2014

Machine drive

Other

Process emission

High temperature heat

Medium temper-ature heat

Low temperatureheat

Total heat for other industries

Iron and steel

2.9 2.1 3.7

Other industries

Non-metallic minerals

5.1

Chemicals

0.9 0.7

2.1

1.3 0.3

0.1

0.30.10.1

1.1

0.10.1

0.3

0.2

0.30.5

0.30

2.2

2.9

SOURCE: Based on IEA data from World Energy Statistics © OECD/IEA 2017, IEA Publishing, Enerdata: Global Energy and CO2 data, McKinsey analysis

10

20

40

30

0

50

60

20202000 2010 204015 35 2050203025 4505951990

A radical shift is required to meet 2030 and 2050 abatement aspirationsNorwegian GHG emissions (Mt CO2e)

2050 target: 80-95% decrease vs. 1990

2030 target: 40% decrease vs. 1990

Need to reduce emissions even

further and faster to limit global warming at 1.5-2.0 degrees Celsius in line with

UN aspiration

SOURCE: Statistics Norway; Table 08940: Klimagasser, etter kilde, energiprodukt og komponent

Industry constitutes >50% of Norwegian GHG emissions with the offshore O&G sector accounting for ~30% aloneNorwegian 2016 GHG emissions (Mt CO2e)

17% 17% <1%4%


15

54 2

26

OtherMetals Food pro-cessing

Industry ChemicalsUpstreamoil & gas

Cement/ minerals

1 <0

26

17

5

Transport

Other

2016

51

Industry

AgriculturePower generation

12

6%57%

Overall industry emissions have been stable since 1990, hiding opposing trends for land-based (-40%) and offshore industry (+80%)Norwegian industry GHG emissions (Mt CO2e)

25

35

15

5

0

30

20

10

1990 95 20152010052000

Total

1990-2015 change

-65%N/A+2%

-24%

-42%

+83%

-3%

-40%

OtherFood processingCement

Chemicals1

Metals2

UpstreamO&G

1 Refineries, fertilizers, petrochemicals and pulp and paper 2 Aluminum and ferroalloys


Industry GHG emission abatement is more complex in Norway than in other coun-tries due to high share of offshore (>50%) and CO2e process emissions (~30%)Norwegian industry 2016 GHG emissions (Mt CO2e)

Total 15.1 4.5 4.3 1.1 0.1 251

CementUpstreamoil & gas

Food processing

Metals Chemicals

Pulp & paper

FertilizersRefineries and petrochemicals

Aluminum Ferroalloys

17

7

1

Total

CO2

Processemissions

Energy/heating

Non-CO2

<0.1

0.7

0.1

2.00.1

<0.1

<0.1

1.1

0.4

<0.1

1.2 0.1

0

1.9

15.1

0.3

0.1

14.0

0.8 <0.10 0.20

1.9

3.12.5

0.4

2.5

0.5

0.3

1.1

1 Excludes ~1,5 Mt CO2e from other industries


Norway’s challenge is a unique one

High share of offshore industry(>50% of emissions) Relatively high amount of process (not energy)-related

emissions (30% of emissions) Already relatively high level of decarbonization has been

achieved (electrification)

Need for ‘deep decarbonization’ measures

Selection criteria for opportunities

Business Case (Capex/Opex) for industry

Opportunity to lead - economic impact

Impact on CO2 reduction, maturity, scalability / replicability of option

Robustness under different scenarios, e.g.:▪ Commodity price developments▪ Will we use a second energy carrier on a large scale (like hydrogen)?▪ Changes in demand – e.g. circular economy / resource productivity

taking off

A portfolio of different abatement measures will be required to handle CO2e emissionsMt CO2e

1.14.3 0.1

25115.1

4.5

2-4

4-6

5-7

5-8

4-6

8-12

>5 1-22-5 <1Abatement potential, Mt CO2e

Abatement potential, CO2e

Total Chemicals Cement Food processingMetals Upstream oil and gas

2016 CO2e emissions

INDICATIVE

1 Ekskluderer ~1,5 MtCO2e fra andre industrier 2 Solid state ammonia synthesis, nuclear electrolysis, direct nitrate route

KILDE: McKinsey-analyse

Bio-based fueland feedstock

CCS/U

Energy efficiencyimprovements

Other

Electrification

Hydrogen

New fertilizerproduction process2

Recycling, substitution

N/A

N/A

N/A

Inert anodes, recycling

N/A

N/A

N/A

28

Co2

Non-Co2

1990

-1

20161990-2016

27

The challenge: ~40% of abatement potential required to meet 2050 aspirations can only be achieved if we unlock new technologiesMt CO2e

Required emission abatement

Conventionaltechnologies

~10% ~50%

Profitable for individualbusinesses

Not profitable for individualbusinesses

Remaining abatement potential

Immaturetechnologies

Electrification

Bio-based fuel and feedstock

Energy efficiency improvements

Hydrogen

Other

CCS/U

~40%

SOURCE: McKinsey analysis

Different policy mechanisms are relevant along the technology development cycle

SOURCE: McKinsey-analyse

Policy mechanisms

Market uptake

Research

Basic research Applied research

Development

Pilots Scale-upAdoption

Technology neutralvs. specific Spread technology bets “Free market” technology betsFocused technology bets

Input vs. output focused Innovation competitions Capex subsidies Focused on emission cuts

Push vs. pull Subsidies and information programsTaxes and direct regulation

CCS/U

Bio-based

Electrification

Energy efficiency

Hydrogen

The opportunity


Norway has an excellent starting position Highly experienced in ‘first

generation’ decarbonization measures

Strong technical competence and collaboration in relevant areas (e.g. in deepwater technology)

Cross – industry synergies (e.g. use bio-product of paper and pulp as biofeedstock for other industries)

3 types of promising areas Development and export of low-

carbon products (e.g. green alumina)

Sale and licensing of innovative decarbonization technologies

Set up of new industries (e.g. hydrogen production and transport, battery manufacturing)

BACK UP – ETC materials

The Energy Transitions CommissionA coalition of leading industries, investors and climate advocates united to limit global warming to well

below 2˚C while stimulating economic development and social progress

Mukund RajanChief Ethics Officer & Chairman, Tata Sustainability Council

Peter TeriumCEO

Nigel ToppingCEO

Philip NewCEO

Riccardo PulitiSr. Dir., Energy & Extractives Global Practice

Andrew SteerPresident and CEO

Nicholas SternProfessor Lei Zhang

CEO

Jean-Pascal TricoireChairman and CEO

Changwen ZhaoDirector General Dept. of Industrial Economy

Cathy ZoiCo-Founder/President

Timothy WirthVice Chair

Kandeh YumkellaFormer CEO

Laurence TubianaCEO

Robert TrezonaHead, Cleantech

Poppy AllonbyManaging Director Natural Resources

Pierre-André de ChalendarCEO

Ajay MathurDirector GeneralCo-Chair ETC

Bernard DavidChairman

Laurent AugusteSenior EVP Innovation & Markets

Stuart GulliverGroup Chief Executive

Adair TurnerETC Chair

Auke LontPresident and CEO

Chad HollidayChairman

Alex LaskeyFormer Co-Founder

Jules KortenhorstCEO

Rachel KyteCEO

Didier HolleauxExecutive Vice President

Mark LaabsManaging Director

Arvid MossEVP Energy & Corporate Business Development

~ 2°C

Well above 2°C

Well below 2°C

~ 2°C

Increase in share of zero-carbon1 energy % points p.a.

1 or more

< 1

< 3 3 or more

Improvement in energy productivity, % p.a.

Historical: 1980-2014

INDCs: 2013-2030

Current actions are not enough yet

SOURCE: Enerdata (2015), Historic actuals

1 We include here renewables, nuclear, biomass and fossil fuels if and when their use can be decarbonized through carbon capture and use or storage (CCS/CCU). However, if a large share of the increase is from the latter, a higher share is required since this does not reduce emissions to zero completely

-10

40

20

30

50

10

0

Central scenario

210020802060204020202000

Billion tonnes CO2

Not a single answer to get to 2˚C

SOURCE: AR5 database

Notes: * The figure shows 28 pathways consistent with limiting warming to 2˚C, as well as other criteria

4 simultaneous transition strategies

Transition tolow carbon

energy systemsproviding energy

access for all

Coherent andstable policyframework

Investmentand financing

shifts

2 sets of enablers

A

B

4 transition strategies

Decarbonization ofpower combined

with extendedelectrification

Acceleration in the pace of energy

productivity improvement

Decarbonization of activities which cannot be

easily electrified

Optimization of fossil fuels use within overall carbon

budget constraints

Country-specific

transition pathways

1 2

3 4

SOURCE: Energy Transitions Commission

China is responsible for about 50% of world’s CO2 emission from the focus sectors

AustraliaBrazil

China2

India

EU28USA

Africa

Mt CO2/yr, 20141

Middle East

73242

134449

215

739236288

61210

28

1999132

14

89155154

25361

582267

38121

6022

826

1,374

4,224

2,024

Non-metallic minerals Iron and steelChemicals

1 2014: Africa, Australia, Middle East, EU28; 2015: Brazil, China, India, USA2 China bar graph not on same scale as other regions/countries

3,711

2,857

8,702

2,134

Global

SOURCE: Enerdata: Global Energy and CO2 Data, McKinsey analysis

China is responsible for around 40% of the world’s energy consumption in the focus sectorsEJ/yr, 20151

29.5

Oil

Natural Gas

Bioenergy

CoalOther

Feedstock

Heat

Electricity

7.4

1.7 1.1

8.0

3.4

5.5

0.3

93.4

Africa

Global

Brazil

EU28USA

China

IndiaMiddle East

Australia

SOURCE: Based on IEA data from World Energy Statistics © OECD/IEA 2017, IEA Publishing, McKinsey analysis

BACK UP – other figures ENOVA

Industry constitutes >50% of Norwegian GHG emissions with the offshore O&G sector accounting for ~30% aloneNorwegian 2016 GHG emissions (Mt CO2e)

100% 20% 13% 9% 3% 2% 53% 30% 9% 8% <1% 3%2%


10

7

5

15

54 2

26

51

ChemicalsOtherPower generation

2

Upstreamoil & gas

Agriculture MetalsTotal Road transport

Othertransport

1

Industry Cement/ minerals

1 <1OtherFood pro-

cessing

Push mechanisms can be designed in many ways, and must be tailored along the technology development cycle

Research

Basic research

Applied research

Development

PilotsAdoption

Scale-up

Subsidies

Information programs

Category Mechanism Description

CO2 certificate Credit paid per unit CO2e reduced from baseline year

Investment tax credits Credit paid as percent of R&D spend on abatement technologies

Lump sum subsidy Lump sum subsidy for either public or private R&D activity on abatement technologies

Innovation competitions

Competitions on well-defined technology problems (often with pre-qualification round)

Preferential loans Preferential loan conditions (i.e. favorable interest rate)

Risk-sharing programs Risk-sharing contracts, i.e. government taking on downside risk of failed/underbudgeted R&D projects

Price guarantees Guaranteed price for R&D output, i.e. technology license fee or renewable input factors (bio-fuels)

Production tax credits Premium paid to suppliers on top of wholesale price i.e. for renewable input factors like bio-fuels

Supply-side information campaigns

Information campaigns to inform industrial companies about opportunities and risks related to technology development and adoption

Industry platforms Cross-industry platforms for collaboration and information-sharing

Demand-side information campaigns

Information campaigns to inform and influence customer behavior


Policy to support renewables adoption has evolved, from feed-in-tariffs to technology-neutral and output-focused tenders Most common today

SOURCE: BNEF, EWEA, McKinsey

Maturing contracting policy

Example

Description

Long-term commitment

Technology-neutral

Output-focused

Technology neutral tender with grid integration cost

Chile

Feed-in-tariffs

Germany UK

Contract for Difference (CDF) tender

Technology neutral tender

Brasil

Competitive, international tenders

Bidding on amount of energy to supply in specified time period

Long-term contract subsidy based on cost of generation for each

technology

Bonus på toppen av markedsprisen

Insentiv for effektiv markedsføring av kraft

Competitive, international tendersTendering of installed

capacity

towards a low-emission norwegian industry 10. 20. 40. 30. 0. 50. 60. 1990. 95. 2000. 05. 2010. 15....

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