The challenge of a generation: decarbonising utilities

Decarbonisation is an imperative for the utilities sector, a cornerstone of modern economies but also a major source of greenhouse gas emissions. European utilities are planning on integrating Carbon Capture and Storage (CCS) and nature-based solutions to offset residual emissions, ensuring a balanced approach to energy transition and sustainability.

What is the magnitude of the issue?

According to the International Energy Agency (IEA), the power generation sector is one of the largest contributors to global emissions, with electricity production accounting for 44% of total CO₂ emissions from fuel combustion (which is nearly three quarters of total world emissions). Despite growing investment in renewables, coal-fired power plants remain a dominant source of emissions, particularly in regions where energy transitions are slower. Over the past 20 years, emissions from power generation have evolved significantly. While total emissions rose steadily in the early 2000s due to increased energy demand, the expansion of renewable energy—particularly wind and solar—has helped slow the growth of emissions in many developed economies. 

However, in some emerging markets, reliance on coal remains high, offsetting global progress. In 2023, global power sector emissions rose to 14,153 million tonnes of CO₂, with Asia contributing 63% of these emissions, primarily due to coal reliance in China and India (Ember). The continued expansion of solar and wind is expected to drive a peak in global power sector emissions within the next few years, but the pace of transition varies widely between countries. 

Given the urgency of the climate crisis, utilities must play a pivotal role in reaching net zero. Yet, the sector's transformation is far from uniform, with stark variations in emissions intensity, energy mix, and decarbonisation strategies across different markets and players.

Not all utilities are created equal

A benchmark by EDF illustrates the profound disparities between utilities (World Nuclear Association). Carbon intensity can vary significantly depending on a company’s generation mix: utilities relying heavily on coal obviously remain highly carbon-intensive, while those with significant nuclear, hydro, or renewables have markedly lower emissions. According to an Enerdata Power Producers Ranking commissioned by EDF, the world's top power producers differ widely in their carbon footprints. Companies such as State Power Investment Corporation (SPIC) of China, which has more than 77GW of installed coal capacity, produce significantly higher emissions than European counterparts like EDF and Enel, which have shifted their energy mix towards lower-carbon sources. This ranking highlights the disparities between regions and corporate strategies, with some utilities making faster progress in decarbonisation than others.

Understanding the different categories of emissions is crucial in understanding the origins of the emissions of utility companies. Scope 1 emissions arise directly from electricity generation, making them the most pressing concern for utilities that rely on fossil fuels. These emissions stem from burning coal, oil, or natural gas to produce electricity, directly contributing to global carbon output. In contrast, Scope 2 emissions refer to indirect emissions from purchased electricity and heat. While these emissions are relatively less significant for utilities, they still factor into the broader carbon footprint of companies that rely on external energy sources, notably subsidiaries. Scope 3 emissions, which encompass indirect emissions from the entire value chain—including fuel supply and end-user consumption—are becoming increasingly scrutinised. This is especially relevant for utilities that also have a gas supply business line, where the emissions from customer usage far exceed those generated during extraction and distribution.

This diversity in carbon footprints underscores the importance of tailoring decarbonisation strategies rather than adopting a one-size-fits-all approach.

Different ambitions and high uncertainty 

Most major utilities have set net-zero targets, but these differ significantly in scope and ambition. While some, like Ørsted (Ørsted Sustainability Report), or Enel (Enel Sustainability Report), have committed to full carbon neutrality by 2040, others aim for 2050 or even later.

Roadmaps typically include clear near-term actions, such as the phasing out of coal, increasing renewable capacity, and enhancing energy storage solutions to ensure grid stability. Many utilities are also investing in modernising transmission infrastructure to accommodate greater shares of variable renewable energy. Additionally, there is a growing focus on electrification strategies, such as expanding electric vehicle charging networks and promoting industrial electrification to replace fossil-fuel-based processes. Utilities are also actively investing in smart grid technologies to improve demand response and energy efficiency across networks. These actions are designed to build a resilient and low-carbon energy system while ensuring long-term reliability and affordability for consumers, the so-called "energy trilemma". 

However, beyond 2030, strategies tend to be much vaguer, relying on assumptions about emerging technologies, regulatory support, and evolving market dynamics (IPCC). Many utilities anticipate breakthroughs in green hydrogen, long-duration energy storage, and advanced grid management systems to facilitate deeper decarbonisation. The role of policy frameworks, such as carbon pricing mechanisms and international climate agreements, is also expected to shape the feasibility of these long-term targets. However, without concrete investments and regulatory clarity, the pathway beyond 2030 remains speculative and heavily dependent on the pace of technological innovation and governmental action.

The inescapable role of emission neutralisation

Despite aggressive reductions, achieving full decarbonisation remains a challenge without emission neutralisation measures. These measures are designed to compensate for emissions that cannot be feasibly eliminated due to economic or technological limitations, either because they are too costly to abate or because viable alternatives have yet to emerge. As a result, utilities are increasingly turning to strategies such as carbon sinks and carbon capture and storage (CCS) to address residual emissions. By integrating these solutions into broader decarbonisation plans, utilities aim to bridge the gap between emission reductions and net-zero targets, ensuring a more consistent approach to long-term sustainability. 

Carbon sinks involve natural processes like afforestation, reforestation, and soil carbon sequestration, which absorb CO₂ from the atmosphere. These processes help mitigate emissions by enhancing the ability of forests, wetlands, and agricultural lands to capture and store carbon over long periods. Expanding these nature-based solutions is increasingly seen as a crucial complement to industrial decarbonisation efforts. European utilities are recognizing the potential of such strategies and have begun making significant investments. For example, Ørsted has committed to restoring and protecting coastal wetlands to enhance carbon sequestration, while Iberdrola has launched large-scale reforestation projects to offset emissions. Similarly, Vattenfall is investing in peatland restoration to strengthen natural carbon sinks and improve biodiversity. These efforts illustrate how utilities are integrating nature-based solutions into their broader sustainability strategies, aligning with net-zero goals and reinforcing the role of ecosystems in climate mitigation. 

CCS, on the other hand, entails capturing CO₂ emissions from industrial processes or energy production and storing them underground to prevent atmospheric release. European utilities are increasingly investing in CCS as a key component of their decarbonisation strategies. A notable example of Carbon Capture and Storage (CCS) in power generation is the Boundary Dam Carbon Capture Project in Canada. Located near Estevan, Saskatchewan, this project retrofitted Unit 3 of the Boundary Dam Power Station with CCS technology, making it the world's first commercial-scale, post-combustion CCS project on a coal-fired power plant. The facility is designed to capture up to one million tonnes of CO₂ annually, which is then used for enhanced oil recovery or stored in deep saline aquifers. This initiative aims to demonstrate the technical, environmental, and economic viability of continued coal use with significant emission reduction. In the UK, the Net Zero Teesside project is developing a gas-fired power plant equipped with carbon capture technology. These projects, while still marginal, illustrate how utilities are trying to leverage CCS to complement their emissions reduction efforts and align with long-term climate goals. These efforts however only make sense if deployed as a last resort for unabatable emissions.

As regulatory frameworks evolve and carbon pricing mechanisms become stricter, utilities will need to integrate CCS within broader decarbonisation strategies as a complete reduction of emissions seems illusive at this stage.

Check Data Hub™ for the sustainability performance of the world's most polluting companies in the utilities sector.

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