Energy and climate IV

Once we have determined the priorities, the goals and then from there, made decisions on which technologies to push for and how to wire up the new low-carbon or climate-transited economy, we need to then make the economics work. There are many decisions that we allow the markets to make and it is true that various technologies can emerge to provide us with multiple solutions to problems we have. But when it comes to climate, we need to be able to gather more resources together.

I don’t think this is so different from the EU’s decision to come together and say we are going to mandate that all gadgets have to use the USB-C connector. Changing our energy system is not as simple but once we can decide on a clear roadmap, then it is easier for the economics to come together. And let me just give an illustration; it is just a demonstration of how things can work:

  • Let’s start with natural gas or LNG as a transition fuel, reducing coal power, rewiring supply chains and logistics
  • When the coal players are clear that there’s a timeline and they are definitively headed for extinction globally, all the coal-based plants will need to prepare for decommissioning and be phased out, alternative power sources to be identified and planned
  • Coal logistics players will need to determine alternative uses of their asset base and start building viable businesses behind them
  • Other innovations around coal might still remain on the condition that it results in low or zero carbon emissions
  • At the same time, LNG infrastructure will expand and gain from scale economies, resulting in more demand as well as supply induced from new resource exploitation.
  • A liquid market forms from that and allows more trading activities and greater access to the resource – which becomes a viable alternative to coal in most places.
  • We then see the emergence of LNG fueled vessels, long-haul transportation trucks and so on.

The same type of cycle can take place though at a grander scale with more winners and losers as we determine for example that hydrogen will be the next major fuel after LNG. The economics of hydrogen will come to work because all players recognise that as the de facto future fuel. Innovations will drive the economics in that direction. Instead of waiting around, taking more actions to speed up the adoption would be critical. And small things can improve the economics:

  • Introducing proper standards and certification for green hydrogen across the world – focusing on the lifecycle carbon accounting in the production of the hydrogen as well as the logistics of moving it to where it is used
  • Allowing certifications to be marketised and traded while also satisfying any targets for decarbonisation.
  • These innovations will also start to incentivise more activities on the hydrogen end-use space such as hydrogen-fueled vehicles and even heating systems using hydrogen (such as in Japan).
  • While there may be some competition between hydrogen fueled systems and battery based systems such as in the case of energy storage, battery electric vehicles; there should be sufficient room for hydrogen – both long haul transport in air, land or sea will not be able to run on batteries.

Japan has also invested substantial efforts in making ammonia a fuel – which might prove wise as the use of ammonia itself eliminates any direct carbon emissions. If we truly want to reduce carbon emissions, removing carbon completely is probably easier than trying to capture it, use it and then re-capture it again. Biofuel can still be in the game but in the extreme long term, its availability is still going to be an issue – besides, there’s always some kind of competition between arable land for food versus fuel.

We all can tell ourselves a story about making the economics work but this requires forward movement in a coordinated way for a handful of stories rather than too many stories and running all over the place. Someone has to take leadership; and that must be one able to mobilize the resources, connections, influence and ideas to do all that.