North America Energy Transition Readiness Index

By Torsten Henzelmann and Martin Hoyer

North America has an enormous thirst for energy – matched by one of the highest levels of emissions per capita of anywhere in the world. In 20212 the United States and Canada alone were responsible for 15 percent of global emissions. But the region is making significant progress along the path to decarbonization. If it can now increase the speed of this progress, the region can potentially act as a role model for the rest of the world. These were the overall conclusions of the second North America Energy Talks, where Roland Berger was knowledge partner.

The latest in the Energy Talks, a series of conferences focused on different geographical regions, brought together industry, political and society leaders from around the world to tackle the increasingly serious challenges in the field of energy. During the conference, participants were asked about the importance of a set of key "energy priorities" and what progress had been achieved towards the energy transition so far. Based on their responses, Energy Talks knowledge partner Roland Berger calculates that North America scores 34 percent in the Energy Transition Readiness Index (see below), one of the highest of any global region. Moreover, North America successfully cut its emissions by 18 percent between 2005 and 2021. Yet, per capita emissions in North America remain relatively high and must fall further still to be sustainable.

Energy Transition Readiness Index

Participants in each session at the Energy Talks completed a short survey on the session's topic. The Energy Transition Readiness Index is calculated based on responses from up to 100 respondents in each session. Participants were asked for their expert opinion on the respective importance and progress achieved so far on each of 11 energy priorities, from "driving exit strategies for coal" to a "just energy transition". The final overall perceived readiness score as regards the energy transition towards net zero in North America is 34 percent.

CO2 reduction – perception versus reality

During the Energy Talks, we asked participants how they thought their region was doing overall on decarbonization . Perceptions were not too far out of line with the reality: The experts estimated that the region had cut emissions by 22 percent since 2005, while the actual figure was 18 percent – in any case a remarkable achievement compared to other regions around the globe. Looking ahead to 2030, conference participants' expectations were ambitious: They estimated that emissions levels would be 46 percent below their 2005 level in 2030. Given that emissions fell by 18 percent in the decade and a half between 2005 and 2021, it is highly optimistic to believe that a reduction twice that size will be possible in the years remaining to 2030.

Ranking energy priorities

Overall, conference participants considered all 11 energy priority to have at least some impact on achieving climate goals. They placed particular emphasis on energy priorities affecting the electricity sector – exit strategies for coal, accelerating the use of renewables , and implementing energy storage solutions . In the past, the focus has been on decarbonizing specific sectors without examining the impact on other sectors. Now, an overarching framework is needed, such as that created by emission markets.

According to the participants, current progress on achieving the energy priorities is uneven. Progress is good in the area of power generation, but even here there is room for further improvement. A number of blind spots also came to light – areas that participants expect to have a high impact but which are currently showing slow progress, such as the establishment of emission markets, and also sector coupling (the electrification of end-user sectors).

What next?

According to the conference participants, what is now needed is much stronger local and global collaboration – a key enabler for driving exit strategies for coal, accelerating renewables systems and creating emission markets. They call for more private-public partnerships, and partnerships between suppliers and customers. A stable regulatory framework is also viewed as essential.

Participants added that innovations will be necessary in order to sustain emission reductions while continuing to grow economies. Funding, too, is important for all energy priorities, from investment programs under the Build Back Better Act to "resilience investments" to address severe weather and pollution.

Energy priorities

1. Drive exit strategies for coal: Decarbonization requires a step-by-step phase out of power and heat generation from coal. Strategies must manage this while simultaneously ensuring a secure supply of power and heat. Coal's role in the transition to carbon neutrality must be clearly defined within these strategies.
2. Accelerate renewables: The speed of the expansion of renewable energy is strongly linked to the speed of decarbonization. However, technological, societal, and bureaucratic barriers partly impede progress. Lifting these barriers is key to speeding up the roll-out of renewable energy solutions.
3. Drive carbon capture and storage: Carbon capture and storage (CCS) is a technological solution for capturing emissions and storing carbon in a way that lessens its climate impact. Decarbonization strategies must define the role of CCS technologies in the transition towards climate neutrality.
4. Digitize the energy grid: A greater share of intermittent renewable energies makes it more challenging for power grids to maintain a secure power supply. The safe and reliable set up, maintenance and operation of the future energy grid requires new digital solutions.
5. Implement energy storage solutions: The intermittency of renewables necessitates both short-term and long-term energy storage solutions. Technological and economic solutions must be devised to ensure that 100% renewable energy delivers a highly secure supply.
6. Power-to-X solutions: The transformation of power to hydrogen and other fuels enables the storage of otherwise curtailed renewable energy. Additionally, power-to-X fuels can be used in hard-to-abate sectors such as aviation and shipping or high-temperature industrial processes.
7. Decarbonize industry (scope 1, 2, 3): Industrial production can generate significant carbon emissions. These must be reduced across Scopes 1, 2 and 3 in order to move towards a carbon-neutral industry and society. The roll-out of new production processes and energy-efficiency measures must define a pathway to carbon neutrality.
8. Sector coupling to decarbonize end-user sectors: All energy end-user sectors must be decarbonized to create a truly climate-neutral society. With an increased share of renewable power generation, the heating and mobility sectors can be decarbonized via the electrification of end-user appliances.
9. Re-invent energy business models: Energy business models are a key enabler for fostering investment in decarbonization technology, for example, via contracting solutions. Solutions such as PPAs (power purchase agreements) and long-term trading can secure payment streams over the investment period, which makes investments bankable and suitable for low-interest financing.
10. Design emission markets: An overarching regulatory framework must ensure the cost-efficient reduction of carbon emissions wherever possible. Implementation of emission markets and/or carbon pricing mechanisms is crucial in order to align incentives across continents, countries, and sectors.
11. Just energy transition: Social acceptance is an essential component of the energy transition. A fair energy transition further includes affordable energy supply, decent working conditions, as well as diversity and inclusion. Social distortions must be avoided, as well as energy poverty and resistance to renewable energy.

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