The outlook for the cost of decarbonization

The pace of technological innovation, a growing push for local supply chains, and tariffs are reshaping the cost of decarbonizing the global economy — but not always in uniform ways. Some decarbonization technologies, such batteries and solar generation, are getting cheaper faster and at scale, but others such as hydrogen-dependent technologies are lagging, according to Goldman Sachs Research.

The Goldman Sachs Carbonomics cost curve assesses the cost of abating greenhouse gas emissions with technologies available at commercial scale. Our analysts consider more than 100 different applications for decarbonization technologies across key emitting sectors. The 2025 edition of the curve shows that innovation continues to lower the cost curve of decarbonization for those technologies that are already affordable. At the lower end of the curve, the average cost of abating a ton of carbon emissions has reduced by 7% compared with 2024.

But the more expensive technologies in hard-to-abate sectors such as industry show no meaningful momentum, and indeed are becoming more expensive, with the cost of the first 75% of the decarbonization curve rising 5% year-on-year. “Innovation delivers, but is two-speed this year,” says Michele Della Vigna, head of EMEA natural resources research for Goldman Sachs Research.

Della Vigna’s team identifies four key factors behind this differential pacing:

• Ongoing deflation in the cost of utility-scale batteries and solar installations, which drives down the lower half of the cost curve
• Slow cost advancements in high-cost technologies such as heavy-duty transport and hydrogen-dependent decarbonization paths in industry, in turn owing to limited production scale, which lifts the upper half of the cost curve
• Ongoing electric vehicle (EV) battery cost deflation and EV economies of scale driving down EV costs for passenger cars and decreasing the implied cost of switching from internal combustion engine (ICE) cars, pushing the high end of the cost curve down

Decarbonization of transport through biofuels, which have become 40% cheaper, driven by lower renewable diesel (RD) and sustainable aviation fuel (SAF) prices, is also contributing to lowering the high end of cost curve.

The challenge of decarbonizing the transport sector

Thanks to shrinking costs and advancements in EV batteries, the transportation decarbonization cost curve has shifted marginally downward this year. Our analysts believe global average battery prices could fall towards $80 per kilowatt-hour (kWh) by the end of 2026, at which point battery-operated passenger EVs could reach price parity with ICE cars without subsidies in the US. Diesel and SAF decarbonization prices have reduced as well, in part because of lower biofuel prices.

With heavy-duty transport, though, cost advancements in electrification are lagging. “We still see significant price premiums (2-3 times) for EV trucks and buses over diesel, despite battery cost advancements,” Della Vigna says in his team’s report.

Overall, on our analysts’ estimates, the weighted-average carbon abatement cost in transport has fallen slightly, from $460 per ton to $455 per ton, with progress in passenger cars costs and biofuels largely but not fully offset by higher abatement costs in heavy transport.

Energy storage costs are shaping the economics of renewables

Access to low-carbon energy is vital not only for the power sector’s own emissions but more broadly for the decarbonization of around 30% of current global greenhouse gas emissions across other sectors such as transport, industry, and buildings.

Roughly a third of the decarbonization of global human-created greenhouse gas emissions is reliant on access to clean power generation. In the power industry this year, the decarbonization cost curve was impacted by the lower cost of utility-scale batteries and renewable power generation, especially solar; a lower long-term gas price, making the gas-to-renewables switch relatively more expensive; and the upper end of the power generation cost curve moving up, mainly driven by the higher cost of green hydrogen.

The costs of clean power technologies such as wind and solar decreased slightly, globally, in 2024 and are expected to fall further in 2025. Solar photovoltaics remain the cheapest power generation option, with the cost of a typical fixed-axis solar farm falling by 21% globally last year.

The most significant change was observed in solar levelized cost of electricity, with battery storage decreasing by approximately one quarter year-on-year, as battery prices saw their biggest annual drop since 2017. Offshore wind remains expensive, with costs expected to fall over time but to remain higher than onshore options.

A combination of these factors contributes to a 1% decrease in the cost of switching from gas to renewable power generation on our 2025 curve, from $66 per ton in 2023 to $65 per ton in 2025.

Deglobalization could increase the cost of decarbonization

Some clean technologies, such as bio-energy, grids, and electrolysers, are manufactured locally across various countries. But others have a dominant, global, low-cost supplier (such as solar and batteries) that continues to gain cost competitiveness, raising questions over the benefits of local manufacturing vs. imports.

Our analysts measured the cost of decarbonization based on the lowest-cost global supplier vs. local production in the US or Europe. This shows that a 115% average import tariff is needed for Western clean tech production to be competitive in solar panels, and a 55% average tariff for batteries, resulting in a 30% rise in the Carbonomics cost curve.

Without tariffs, switching to solar and wind power would be cheaper if countries relied on the cheapest imports possible. Relying on local production, by comparison, would be 25% more expensive.

For the transport sector, the premium for local production is even higher: 80%. The weighted-average carbon abatement cost stands at $308 per ton in the cheapest-imports scenario and $548 per ton if passenger cars and other vehicles were to be produced locally.

Lower gas prices are key to decarbonizing the global economy

Lower gas prices could further decrease power generation decarbonization costs by 20%.

“In view of growing liquified natural gas supply from 2026 and a potential restart of Russian gas flows lowering gas prices, we find that the benefit of accelerated coal to gas switching more than offsets the negative impact on renewable economics,” Della Vigna writes.

 

This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.