Emissions by Sector: Strategies for Achieving Net Zero

The urgency of addressing climate change is more pressing than ever and achieving net-zero emissions by mid-century is a global priority.

To do this, it is crucial to understand where emissions are concentrated within the global economy. By analyzing emissions by sector, we can identify the specific activities and industries contributing the most greenhouse gas emissions and develop targeted strategies for each. This article provides a sectoral breakdown of global emissions and explores the primary pathways for transitioning sectors to net zero.

An Overview of Global Emissions by Sector

Before we start dividing up global greenhouse gas (GHG) emissions by sector, we note that the latest figures from the European Commission indicate that global GHG emissions reached 53.8 gigatons of CO2-equivalent in 2022. This is a new all-time peak, which further reduces the remaining carbon budget.

We now turn to the sectoral breakdown of current total global emissions. Looking to Figure 1, we see that electricity production, and the sector for food, agriculture and land use, are the highest emitting areas, each contributing about a quarter of global GHG emissions. The industry sector (chemicals, metals, mining etc) contributed 21%, while transportation and buildings accounted for 14% and 6%, respectively. The final 10% comes from other energy sources and fugitive emissions, two significant areas of emissions that don’t fit neatly within a sectoral breakdown.

Source: Project Drawdown, 2023

Note that this paper uses scope 1 emissions for each sector. That is, the emissions produced by sources owned or controlled by the sector. Focusing solely on scope 1 emissions provides a straightforward and clear-cut analysis of the emissions each sector is directly accountable for. This means that each sector’s indirect emissions from their electricity usage (scope 2 emissions) are included in the electricity production sector.

A Sectoral Perspective on Transitioning to Net Zero

Given the spread of activities that produce global emissions, no single or simple set of solutions is sufficient to tackle climate change. And focusing on electricity, transport, food, or deforestation alone will not get us there. To achieve net-zero emissions, we will need innovations and action across all sectors.

To further compound the problem, it is expected that some of the emissions within each sector will be extremely hard to abate. It is therefore important to understand what percentage of emissions are likely to remain after all achievable direct emissions cuts have been made, as well as a strategy developed to deal with this remainder so that net zero is achieved.

We can turn here to the work of Project Drawdown which, as part of their net-zero roadmap, have developed a comprehensive sector and subsector breakdown of achievable direct emissions cuts, along with strategies for dealing with the remaining hard-to-abate emissions. Note that while numerous comprehensive transition plans have been published, Project Drawdown’s work is used throughout this article because it employs consistent sector definitions for calculating both emissions contributions and emissions reductions opportunities. This allows us to make a like-for-like comparison between these two sets of figures.

We will now look at the spread of activities required to transition to net zero. This is broken down into three categories of action: direct emissions cuts, indirect emissions cuts, and carbon removal.

Direct Emissions Cuts

The largest emissions reductions will be from direct emissions cuts. This should account for 87% of global emissions reductions.

Direct emissions can be cut in two primary ways — avoidance or reduction.

• Avoidance refers to strategies and actions taken to prevent GHG emissions from occurring in the first place. This involves changing practices or technologies to eliminate the source(s) of emissions.
• Reduction refers to lowering the volume of GHG emissions produced by existing processes and activities. This category focuses on minimizing emissions through technological upgrades and operational changes.

Let’s proceed sector by sector to see how emissions can be avoided or reduced directly.

Electricity Production

• Sources (25% of global emissions): The electricity sector is the largest contributor to global GHG emissions. Key sources include coal, oil, and natural gas. The combustion of these fuels releases significant amounts of CO2, making the energy sector a primary target for emission reduction efforts.
• Solutions (22% of global emissions reductions): The transition to renewable energy sources is the cornerstone of achieving net zero in the energy sector. This includes expanding solar, wind, hydro, and geothermal power. Electrification and grid modernization are also critical, ensuring that renewable energy can be effectively integrated and distributed. Electricity demand is expected to keep on rising so clean energy sources will need to meet and then surpass existing usage.

Food, Agriculture, and Land Use

• Sources (24% of global emissions): This sector’s contribution to global GHG emissions comes primarily from deforestation, livestock and changing land from its natural state to use for agriculture to build cities and infrastructure. Methane emissions released by animals, fermentation in rice paddies, and decomposition in landfills are also significant sources of emissions for this sector. Nitrous oxide emissions from soil management practices are another substantial source.
• Solutions (21% of global emissions reductions): Sustainable farming practices, including precision agriculture and agroforestry, can reduce emissions from agriculture. Reducing food waste and improving land management practices are also important strategies for mitigating emissions in this sector. Improved waste management practices, including waste reduction, recycling and methane capture will be crucial in minimizing emissions from this sector.

Industry

• Sources (21% of global emissions): Heavy industries like cement, steel, and chemicals are the primary sources of emissions within this sector. The production processes in these industries are highly energy-intensive and involve chemical reactions that emit large amounts of CO2 and other GHGs.
• Solutions (18% of global emissions reductions): Innovations in industrial processes and the adoption of clean technologies are crucial for reducing emissions in this sector; examples of this include electric arc furnaces used for steel production and the use of alternative cements. Improving material efficiency and recycling can also reduce emissions. The use of alternative fuels like hydrogen and bioenergy is gaining traction, offering potential pathways for reducing industrial emissions.

Transport

• Sources (14% of global emissions): Road transportation is the largest contributor to transport’s emissions, followed by aviation and shipping. The reliance on petroleum-based fuels makes this sector a significant source of CO2
• Solutions (13% of global emissions reductions): Electrification of vehicles is a key strategy for reducing emissions in the transport sector. This includes not only passenger cars but also buses and trucks. Development of sustainable fuels can also play a significant role, especially in modes of transportation where electrification looks particularly challenging, such as aircraft and ships. Enhancing public transportation infrastructure and encouraging its use can further reduce reliance on individual car travel, also cutting emissions.

Buildings

• Sources (6% of global emissions): Emissions from buildings, both residential and commercial, primarily come from heating and cooling.
• Solutions (5% of global emissions reductions): Improving energy efficiency in buildings — as well as electrifying and transitioning to renewable energy sources for heating and cooling, such as heat pumps — can significantly reduce emissions in this sector. Improving energy efficiency in buildings involves better insulation, smart energy management systems, and high-efficiency appliances. Sustainable building materials and design, such as green roofs and passive solar design, can also contribute to lower emissions.

Other

• Sources (10% of global emissions): This final grouping is comprised of other energy sources and flaring/fugitive emissions. These have been clustered together as they don’t sit neatly within the sectoral groupings. Other energy sources include things like the domestic use of wood, kerosene, charcoal and dung for cooking and heating. Flaring predominantly refers to natural gas being burned off as part of the oil extraction process. Fugitive emissions include a range of gases released into the atmosphere because of fossil fuel extraction, or leakage from pipework and other machinery (such as refrigerants from cooling systems).
• Solutions (8% of global emissions reductions): When it comes to the ‘other energy’ subsector, the main focus is on either replacing highly polluting energy sources with relatively cleaner ones, or electrification. To reduce flaring and fugitive emissions, a range of technologies are used — such as flare gas recovery systems and real-time monitoring systems.

Figure 2 summarises the above figures. The ‘Remaining Emissions’ column shows the difference between each sector’s contribution to total global emissions and the direct emissions cuts that are considered achievable between now and 2050 (according to Project Drawdown’s Net Zero Roadmap). This represents each sector’s hard-to-abate emissions, leaving us with 13% of total global emissions that can’t be tackled via direct emissions cuts.

Source: Project Drawdown, 2023

So, the question then arises: What can we do about this remaining 13% of emissions? The response to this can be broken down into two further categories of action — indirect emissions cuts and carbon removal.

Indirect Emissions Cuts

Indirect emissions cuts refer to activities that are not focused on climate issues, but reduce emissions as a by-product of action to, for example, meet Sustainable Development Goals. These types of interventions are sometimes referred to as social interventions as they tend to focus on things that help people first but have secondary effects that help the planet. A couple of examples include:

• Supporting indigenous communities to protect their land and establish transparent land tenure/ownership. While this is a just pursuit in itself, recent studies demonstrate that it is also one of the most effective ways of lowering deforestation rates.
• Promoting more equitable access to education and healthcare for women and girls. This, again, is beneficial while also having strong secondary effects that support the transition to net zero. Evidence suggests that improving education and healthcare improves economic outcomes and reduces population growth over the long term, which are associated with emissions reductions over time.

Indirect emissions cuts are expected to account for an additional 7% of global emission reductions, leaving 6% that that cannot be cut directly or indirectly.

Carbon Removal

Carbon removal is needed to reduce the final 6% of emissions, and works by either capturing emissions at source, or extracting existing GHGs from the atmosphere and sequestering them. This category includes both natural and technological solutions. Key activities include:

• Reforestation and Afforestation: Restoring forests and planting trees to absorb CO2 from the atmosphere through photosynthesis, thus increasing carbon sequestration.
• Soil Carbon Sequestration: Implementing agricultural practices that enhance the ability of soil to capture and store carbon, such as cover cropping, agroforestry and the use of biochar.
• Carbon Capture and Storage (CCS): Developing and deploying technologies that capture CO2 emissions from industrial sources and power plants and securely storing it underground or utilizing it in other processes.
  
  

Parting Thoughts

Understanding each sector’s contribution to total global emissions, as well as its capacity to achieve emissions reductions, is critical to forming good policies and making sure investment is flowing into the right places as we transition to a net-zero economy.

It is clear that direct emissions cuts, indirect emissions cuts, and carbon removal are all needed to achieve net-zero emissions. Risk managers therefore need to understand which mix applies to the sectors, and individual customers, they lend to, invest in and insure, so that they understand potential transition pathways and can support their customers with the products they need during different phases of the journey.

If you would like to learn more about this topic, you can listen to a recent GARP Climate Risk podcast with Lord Adair Turner, discussing sectoral changes that are happening now.

Tim Walton is a vice president at GARP Risk Institute specializing in sustainability and climate risk. His work spans research, program management and content production.