Goldman Sachs – Carbonomics

Goldman Sachs has updated its Carbonomics cost curve, which analyzes the costs of decarbonization technologies in various sectors. The updated curve reveals diverging trends between power and transport sectors. The report highlights five key conclusions from the updated cost curve. Firstly, low-cost decarbonization has become more expensive due to the increase in the levelized cost of electricity (LCOE) for renewable power generation. The LCOE has risen by approximately 11% year-on-year and 42% compared to the lowest point in 2020. This increase is driven by higher interest rates and cost inflation in wind power. Secondly, high-cost decarbonization, primarily in the transport sector, has become 30% cheaper. This is attributed to the deflationary trend of batteries, as lower raw material costs and simpler cell-to-vehicle integration make a three-year payback target achievable by the mid-decade. Thirdly, while higher interest rates have an impact on the overall cost curve, it is limited. However, it does have a significant effect on the carbon abatement cost in the renewable power sector, accounting for 25% of the total increase. Fourthly, the report finds that policy support for decarbonization remains strong, with $500 billion of project announcements driven by the IRA (International Renewable Energy Agency). However, political uncertainty and delays in key specifications could lead to project delays. Lastly, bio-energy, particularly renewable natural gas (RNG) and sustainable aviation fuel (SAF), is gaining momentum in heavy transport, industry, and buildings, expanding its role in decarbonization efforts. Overall, the updated Carbonomics cost curve demonstrates the changing dynamics of decarbonization costs, with renewable power becoming more expensive and transport decarbonization becoming more cost-effective. The report also emphasizes the continued importance of policy support and the growth of bio-energy in reducing carbon emissions.