Regulatory principles and actions relating to energy decarbonisation that contribute to a sustainable and efficient framework to combat climate change

Energy transition

Climate change is today's greatest environmental challenge, and social concern about it grows year by year. The 2015 Paris Agreement was a decisive move to action, since 195 nations approved the limiting of the increase in global temperature to 2 ºC by the end of the century compared to pre-industrial levels and the pursuance of efforts to reduce it to 1.5 ºC.


What is decarbonisation?

Decarbonisation is the process of reducing the amount of carbon, mainly carbon dioxide (CO2), sent into the atmosphere. Its objective is to achieve a low-emission global economy to attain climate neutrality via the energy transition.

Human beings, by burning fossil fuels for reasons of economic development, have increased CO2 emissions — one of the main causes of the greenhouse effect and, therefore, of global warming and climate change —. Decarbonisation can only be achieved through an energy transition, a structural change that removes carbon from energy production. This involves the electrification of the economy based on clean, alternative energies that only emit what the planet can absorb. Understanding what electrification is, its importance and how it plays out in each sector is an urgent global task to reduce the carbon footprint from large cities and industrial sectors to urban mobility.

Iberdrola firmly believes that the transition to a carbon-neutral economy by 2050 is possible and makes economic sense. The decarbonisation of the economy, moreover, is a tremendous opportunity to create wealth, generate employment and improve air quality. The group therefore committed to leading the energy transition, a journey it first embarked on 20 years ago. Since then, it has invested 120 billion euros. In addition, it will maintain its investment effort with over €41bn until 2026 to remain at the forefront of the energy revolution, which will allow the company to exceed, by the end of the decade, 100 GW of installed capacity, more than 80% renewable.

The regulatory situation is fundamental to progress, at the lowest possible cost, towards more efficient and emissions-free energy vectors and end uses, facilitating efficient decarbonisation.

In recent years Europe has been the most decisive in leading the global energy transition, supporting the achievement of a low-carbon economy through targets and regulatory policies. The European Green Deal, published towards the end of 2019, is the European Commission's strategy for reaching carbon neutrality by 2050 and improving competitiveness by removing the connection between economic growth and the use of resources.

This greater climate ambition was ratified in the European Climate Law of June 2021, which approves the commitment to carbon neutrality by 2050 (vs the current 80-95 % reduction target compared to 1990) and raised the emissions reduction objective for 2030, taking it from 40 % to 55 %. This upward amendment means reviewing and reforming all the existing energy and climate regulations through the legislative package called Fit-for-55, that will be developed over the next two years.

Furthermore, and in order to encourage economic reactivation, the European Union has approved the Next Generation EU funds, an extraordinary instrument of 750 million euros to help recovery following the COVID crisis. Part of these funds will go towards implementing the measures needed to achieve these climate objectives, according to the Recovery and Resilience Plans developed by each of the Member States.

 Efficient decarbonisation

Efficient decarbonisation is the kind that successfully progresses towards carbon neutrality at the lowest possible cost, enabling each end use of energy to reduce its emissions using the most competitive option.

Electricity is the energy vector that allows for the greatest integration of renewables and is therefore the most efficient option to decarbonise other financial sectors at the lowest cost. Furthermore, it is the only alternative that improves energy efficiency — the basic principle of decarbonisation.

However, there are some end uses of energy for which electrification is not possible or not competitive. In these cases, the reduction of emissions requires the use of decarbonised fuels which are at the initial stages of their technological development and are still expensive.

 Decarbonisation of the electricity sector

The first challenge for an efficient energy transition is to maximise the decarbonisation of the electricity sector — the best-positioned to meet the challenge quickly and competitively, thanks to the growing integration of renewable energy sources into its generation mix. It is hoped to achieve around 65 % of electricity generation from renewables by 2030 and 85 % in 2050, which requires taking certain steps:

  • Promoting renewables, by incentivising competitive mechanisms.
  • Developing and digitising the grid infrastructure, with a stable and predictable regulatory framework.
  • Establishing capacity mechanisms that can guarantee the solidarity and flexibility that the system needs in a sustainable way.
  • Encouraging efficient storage, to facilitate the management of a high penetration of renewables.


 Electrification of the economy

The second challenge is to decarbonise other sectors of the economy through greater electrification, mainly in transport (through electric vehicles) and buildings (through electric heat pumps). To achieve this, bases need to be established for the creation of a level playing field between energies:

  • By establishing a universal environmental tax system (all energies bear the costs of decarbonisation), based on the principle of "the polluter pays".
  • By breaking down the barriers to electrification, purging electricity tariffs of costs unconnected with the supply and encouraging electricity for end use.


 Decarbonisation of other non-electrificable uses

There are certain consumers — such as shipping, aviation, haulage and high-temperature industries — for which electrification is not possible or is uncompetitive. In these cases it will be necessary to use decarbonised fuels to achieve carbon neutrality, though this technology is still immature and consequently very expensive.

These niches represent 16 % of the EU's energy consumption and emissions, so their impact on the overall calculation is lower and they can be decarbonised later, when the required technology becomes more competitive.

In order to make progress towards their technological maturity, research into these clean solutions needs an R+D push, getting the affected industries involved to optimise the decarbonisation of their processes.

Iberdrola, already a pioneer in the renewables movement, is developing a large-scale project to generate green hydrogen from photovoltaic solar energy in Puertollano and, by 2030, it expects to produce 350,000 tonnes/year of green H2.