4.5.2.1. Cascading effects in sociotechnical systems

Across sociotechnical systems, cascading effects can occur when one sector drives the cost of a shared technology down, or when the output of one sector provides a low-cost input to others. Electricity is a general-purpose technology, and with renewable energy becoming the cheapest source of electricity generation (Way et al., 2022), there is the potential for economy-wide cascading consequences across the electricity sector, mobility and heating (Chapter 4.3). Low-cost renewable power combined with cheaper and longer-duration battery storage is making direct electrification highly attractive in some sectors of the economy (e.g. light-road transport) and more feasible in others (e.g. heavy-duty transport, short-haul shipping and aviation).

Specifically, passenger electric vehicles (EVs) represent the majority of projected demand for batteries, with estimates suggesting that they will account for ~70 per cent of total installed battery capacity by 2030. At the same time, wider deployment of EVs reduces the battery costs, further reducing the renewables’ storage costs in the energy sector. Meldrum et al. (2023) highlight that boosting EV adoption to 60 per cent of total global passenger vehicle sales by 2030 would increase the total volume of battery production by 10 times from current levels, while a continuation of the currently announced projects would increase the battery production capacity only fourfold from the current levels (IEA, 2023). Given current learning rates, this could drive a 60 per cent reduction in battery costs by 2030. As battery costs account for ~30 per cent of the total cost of renewable power, a 60 per cent reduction in them will bring forward cost parity points of new solar/wind plus storage with new or existing gas (or coal) power generation.

Cheaper batteries provide cost-effective electricity storage also to balance intermittent renewable energy supply and demand, encouraging homeowners to install batteries that charge at low rates during the night and provide power at times of peak demand during the day (4.3.1). Furthermore, declining costs of renewables boosts the use of heat pumps in residential heating, with higher demand for renewables in return (Meldrum et al., 2023). In the mobility sector, cheaper and better-performing batteries, as well as the advancing electric drivetrain technology, are increasing the competitiveness of electric trucks, bringing forward the point where they outcompete petrol or diesel trucks. Linked with advances in digitalisation, this spurs decentralisation of electricity generation (4.4.4 and 4.3.2).

The impact of cheaper electrolysers and renewable energy goes beyond the electricity sector, mobility and home energy, and creates new avenues for industries to decarbonise using green hydrogen and its derivatives. For instance, green ammonia (produced from hydrogen with renewable energy) can be used for agricultural fertilisers, shipping fuel and synthetic jet fuel in aviation. It can also be a storage option to facilitate load balancing in renewable electricity systems (Edmonds et al., 2022, Bouaboula et al., 2023). Green ammonia is already cost competitive in fertiliser production, thanks also to its low transport costs either through pipelines or shipping (IEA, 2019). With economies of scale and learning, progress in green ammonia use for fertilisers could bring down the cost of green hydrogen for use in several other sectors. For example, implementing a 25 per cent green ammonia blending mandate in fertiliser manufacturing could create demand for almost 100 GW of hydrogen electrolysers, which would reduce capital costs by ~70 per cent given current learning rates. This could unlock US$1.5/kg green hydrogen costs if accompanied by continued falls in the cost of clean electricity – helping to close the gap to cost parity or increase the economic viability of zero-emission solutions in other sectors including steel production and shipping.