Reinforcing the Important Cycle of Reducing Emissions and Improving Technology

During the United Nations climate talks in Paris in December 2015, 195 nations along with the EU drafted an agreement to address climate change by meeting nationally determined emissions-reduction targets.

However, some experts feel that the national targets mentioned in the Paris Agreement are not enough to achieve the goal of minimizing global warming to less than 2°C.  There is also the concern that certain countries will not be able to meet their targets or will not meet their targets.

A recent study from MIT  reveals that if countries comply with their emissions-reduction targets, the cost of electricity from wind systems could decrease by 25% and from solar photovoltaic systems by 50% between 2016 and 2030.

This would be possible because countries will have to set up low-carbon technologies to cut their emissions. This will lead to technological innovation and reduction in costs, enabling further deployment.

According to the researchers, if countries reinvest their savings as costs drop, they can optimize their wind deployment by 20% and solar deployment by 40%, for exactly the same amount of investment.

The reduced costs of these and other low-carbon technologies will also help developing countries reach their emissions-reduction targets for the future. Details of the MIT research analysis were presented at the White House and referenced by negotiators stationed at Paris.

In the research, Jessika Trancik, the Atlantic Richfield Career Development Assistant Professor of Energy Studies at the MIT Institute for Data, Systems, and Society (IDSS), and her colleagues proved that the effect of this jointly reinforcing cycle of emissions reduction and technology development can be important. “The return on emissions reductions can be astonishingly large … and should feature prominently in efforts to broker an ambitious, long-term agreement among nations,” she notes.

Trancik agrees that the targets as mentioned in the Paris agreement are too weak to accomplish the task. But she warns that focusing only at those targets will not reveal the whole scenario.

There’s something else going on below the surface that’s important to recognize. If those pledges are realized, they’ll require an expansion of clean energy, which will mean further investment in developing key clean-energy technologies. If good investment and policy decisions are made, the technologies will improve, and costs will come down.

Jessika Trancik, Assistant Professor, MIT

Therefore, efforts to cut carbon emissions will reduce the cost of meeting current emissions-reduction targets and taking on stronger targets in the near future.

The research team consisted of interdisciplinary graduate students - Patrick Brown of the Department of Physics, Joel Jean of the Department of Electrical Engineering and Computer Ccience, and Goksin Kavlak and Magdalena Klemun of IDSS - in consultation with other colleagues at both MIT and Tsinghua University in Beijing, China.

Prior to the Paris climate talks, the team took their message to Washington. In an invited talk at the White House, the research findings were presented by Trancik to U.S. policymakers, and the message seemed to have been well-received.

The report was later used by U.S. negotiators during the talks to persuade agreement to revisit and reinforce commitments once in five years. In the White House statements regarding the agreement, including the final press release, the mutually strengthening cycle between improved mitigation and cost reductions was cited; and in the Paris Agreement, the advantages of early investment in emissions reductions to bring down the cost of future mitigation was cited.

Understanding Technology Development

Technology development is not a new area of study for Trancik. In the last ten years, she has devoted time to analyze the fundamental reasons why technologies improves over time. She specifically looked into why the cost of a technology drops as its deployment grows - a fact first observed nearly 80 years ago.

By formulating primarily new research techniques, Trancik was able to look closely at solar photovoltaics (PV) and other technologies to replicate changes in time. The resulting models can be analyzed against data and then used in several different technologies to narrow down the basic drivers of technological optimization.

The research involved analyzing several technologies, identifying key trends in everything from individual device capabilities and limitations up to macroscale market performance.

One year back, she decided to closely study PV and wind technologies - two low-carbon energy sources that have been developing quickly and have great prospect for expansion. With the aid of her analytical methodology, she asked: How rapidly are these technologies developing? How quickly have costs dropped and why? And what can past insights reveal about future trends - in particular, under the emissions-reduction targets mentioned in the Paris Agreement?

Expanding Markets, Falling Costs

In the last few decades, global wind and solar electricity-generating capacities have developed at rates greater than those forecast by experts, and related costs have decreased significantly.

Between the years 2000 and 2014, universal solar PV capacity grew 126 times and wind capacity 23 times. During that same period, the cost of a solar PV module dropped 86% per kilowatt, and the cost of wind-generated electricity reduced by 35% per megawatt-hour.

The MIT researchers established why those costs have been dropping based on Trancik’s earlier research on the drivers of technological improvement. Public funding of R&D had a role to play in this, but a chief contributor was the policies put forward by governments across the world to reward the use of technologies that aided emissions-reduction.

These policies ensured an increase in the deployment of solar and wind technologies and expansion of markets, which in turn led to increasing competition among firms to surpass each other. For instance, in-house researchers aim to enhance product designs and manufacturing processes. Technicians on solar PV manufacturing lines look for newer methods to reduce wastage of high-cost silicon and make processes highly efficient. Also, better output leads to decreased costs from economies of scale.

Policies to incentivize the growth of markets have unleashed the ingenuity of private companies to drive down costs. I think that’s an important angle that’s not always recognized.

Jessika Trancik, Assistant Professor, MIT

The increases have resulted from a mixture of public policies adopted by a group of countries in Europe, North America, and Asia. Moreover, the leadership role in setting up the technologies has shifted over the last 30 years.

Solar PV deployment was initially led by Japan and then Germany, while wind deployment moved from the United States to Germany and then to China. “Effort was not coordinated,” says Trancik. “Nonetheless, something resembling a relay race emerged, with countries trading off the leader’s baton to maintain progress as efforts from individual nations rose and fell.”

Implications for the Paris Agreement

To find out what are the implications, the researchers first set out to estimate how much wind and solar capacity would be installed under the Intended Nationally Determined Contributions (INDCs) according to the countries in the Paris Agreement.

They assumed a situation where a relatively strong emphasis was laid on the renewables but also allowed for increased use of hydropower and nuclear fission, and they took into consideration any specific pledge to renewables adoption that countries have made.

Based on analysis of all the INDCs, they came to the conclusion that worldwide installed solar capacity could grow almost fivefold and wind nearly threefold between 2016 and 2030.

To predict how costs will vary at those deployment levels, the team used models that Trancik had created in her earlier research, including techniques of handling natural uncertainty and estimating errors so as to produce strong results. Additionally, they took into account expert opinion regarding estimates of the “soft costs” of PV installation - such as labor, permitting, and construction costs (on-site), which differ considerably from country to country.

They estimate a cost drop of 50% for solar PV and 25% for wind between 2016 and 2030 according to their analysis. The results indicate that even in 2014, wind was already competing against natural gas and coal. Solar PV however can compete only against coal and only when the cost of coal is increased to take into consideration health-related costs due to air pollution.

By 2030, solar costs are approximately comparable to the 2014 coal and natural gas costs, even without considering health costs.

So there are already circumstances under which switching from fossil fuels to renewable sources could both abate carbon emissions and reduce the cost of generating electricity. [The] development of storage will become increasingly critical over time as intermittent renewables deployment grows.

Jessika Trancik, Assistant Professor, MIT

An obvious query is whether the coal and natural gas technologies will also grow between the years of 2016 and 2030, pushing aside the renewables’ ability to compete. According to the researchers, the cost of producing electricity using those fuels has not met long-term decreasing trends in the last few decades.

In both cases, a large portion of the total cost is purchasing the fuel. Those fuel costs tend to vary over the short term but over the longer term the trend is neither up nor down, thus restricting the drop in cost for the technologies that depend upon them.

Messages for Policymakers

Trancik cites many potential outcomes for the Paris Agreement if pledges are realized. One is that the targets are met, costs drop, and countries will be in a much better position by 2025 or 2030 to commit to more emissions reductions and increased use of low-carbon technology.

Another possible outcome is that the use of wind and solar PV could in fact beat the INDC commitments, due to just the market forces or due to the increasingly aggressive public policy.

In the years to come, policymakers may become more ambitious because of the ability to use additional low-carbon energy without extra financial investment. Based on the researchers’ scenario, the INDCs commit countries to using a maximum of 858 GW of solar PV by the year 2030.

But if costs decrease as estimated by the MIT team, then it can help deploy 1,210 GW with that saved amount of money - a 40% increase. Conducting a similar analysis for wind reveals that the projected cost drop would allow a 20% increase in the amount of wind power used for the same investment.

So if developed countries invest their cost savings back into deployment, they could increase their emissions-reduction commitments without changing the total investment — and the larger those commitments, the faster costs may fall. If good decisions are made, by the time the least-developed nations are required to cut emissions, technology development may have lowered costs so much that switching to low-carbon energy is a benefit rather than a burden.

Jessika Trancik, Assistant Professor, MIT

Sustaining the Momentum

As solar PV and wind power start to dictate electricity markets, other technologies and processes will have to be in place to guarantee reliable supply of power.

Since electricity generation from wind and solar sources is irregular, guaranteeing that supply is available to realize demand will require large storage devices, increased long-distance transmission infrastructure, and techniques of transferring demand to times of maximum supply.

“We can draw lessons on how to drive innovation in those areas by observing the approaches that successfully grew PV and wind markets,” says Trancik. But, she remarks that the future is unpredictable and the world must not “put all our eggs in one basket.”

Other low-carbon electricity sources - such as nuclear fission and hydropower in certain locations - as well as technologies for heating and transportation should also be promoted.

On the solar side, the challenge is to lower the soft costs of installation. PV modules and inverters are globally available in the market, so cost-reducing developments in that hardware can be shared globally. But at the moment the soft cost components are not traded on international markets, and they are double the cost in some countries.

Discovering ways to share best practices and knowledge with regards to soft costs, or possibly even developing global markets, could greatly decrease total costs, both within some countries and worldwide.

Trancik and her partners offer a final encouraging observation: There certainly appears to be an increasing acknowledgment among negotiators of the long-term positive contributions their countries can make by adopting low-carbon energy and bringing down costs.

I think countries now realize that by supporting the early-stage development of these low-carbon energy technologies, they’re helping to contribute knowledge that will last indefinitely and will enable the world to combat climate change, and they take pride in that. It’s something that can become part of their historical legacy — an opportunity that I believe played a role in the latest climate change negotiations.

Jessika Trancik, Assistant Professor, MIT

The MIT International Policy Laboratory supported this research. A version of this paper first appeared in the Spring 2016 issue of Energy Futures, the magazine of the MIT Energy Initiative.