These days I more often talk about biofuels and bioenergy than hydrogen. Mostly because I believe that bioenergy is the best scaffolding that is available in the market for commercializing hydrogen for renewable fuel use massively.
I moderated a panel at AlterCOP 29 last year, where I help to spark some discussions about what hydrogen is good for and what could help hydrogen be a solution for decarbonisation, if at all.
There hasn’t been too much changes in fundamentals since we had that discussion but we know that a lot of bad news about hydrogen have plagued the industry since the start of this year.
Most recently, McPhy, the electrolyser manufacturer liquidated with most assets taken over by John Cockerill. One of the chief issues is that the industry has grown so much on the back of anticipated and realised policies without improving its commercial case over the same period of time.
As a result, the solution continues to be commercially challenging and expectations of handouts from government have reduced the drive to improve commercial case.
It’s been a while since I’ve written and since coming back from a SAF conference last week, the challenges faced by the entire ecosystem continues to weigh on my mind. The most obvious challenge in the fact that producers (energy companies or feedstock suppliers venturing into SAF production) and users (airlines) diverge sharply on their views of what is a price that the market can exist and perpetuate at.
To me, this is a symptom of underlying issues including the fact that SAF mandates are crudely determined with a volumetric blend, and that more often than not, the mandates could just force all airports to try and adopt SAF as opposed to starting with some key nodes and rolling out to the minor airports. Or the mandates could just be fulfilled by airlines at the level of their fleets. Or in the case of domestic carriers and flights, all of the flights for that year of reporting. This allows airlines to meet the mandates flexibly. And the market can then optimise for the logistics of delivery as well.
Another issue with the volumetric blending mandates is that typically there’s a threshold of emissions reduction that the fuel must meet to be considered SAF, and the users will purchase just the cheapest one available. That means that producers are not incentivised to produce any fuel better than the mandated threshold. This throws up questions: whether you could blend a bit of A1 Jet fuel into a SAF with much lower carbon intensity than the threshold and then call it ‘neat SAF’? Tricky. And controversial.
At the end of the day, what are regulators and the economy trying to achieve? Decarbonisation. Is aviation important enough for policymakers to focus their attention? Yes and no. Yes because it is hard-to-abate and if no regulations are in place, they will just keep going and spew more carbon into the air. But no because ultimately, aviation emissions are only 2.5% of the global emissions. The proportion will surely grow as the rest of the economy decarbonises; so most of the approach now essentially is to throttle that aviation emissions growth.
Will throttling aviation emissions growth destroy aviation demand? Surely without a doubt. Should we do that only in places where there’s substitutes which are low-carbon (such as trains and electric transportation)? Perhaps. For individual government and agencies making decisions, ultimately, aviation is really not a huge area compared to most other carbon-emitting industries. There’s perception that aviation will have higher willingness-to-pay but I don’t think that should necessarily be the excuse to push the emissions reduction on them.
Again, those are just my opinions and musings for the week.
This year, the EU mandated 2% Sustainable Aviation Fuel (SAF) blending in all airports feeding into aeroplanes. The definitions of SAF for EU is clear, mostly based on a whitelist of feedstocks that are proven to be ‘sustainable’ and achieves a high level of carbon emissions reduction on a lifecycle basis (70% or more compared to A1 Jet Fuels). Unlike CORSIA, which puts the onus on airlines to reduce their emissions from jet fuels, RefuelEU regulations put the responsibility on fuel suppliers that supply to the airports. These suppliers will need to quote their prices to airlines accounting for these regulations, and while airlines don’t have to deal with the hassle of making sure the blend is correct to meet compliance requirements, they will need to bear the increased costs.
Now, there are also similar SAF regulations in the US under Renewable Fuel Standards, but their requirements for feedstocks and lifecycle carbon emissions reductions are different. Just to caveat first that I’m way less familiar with the US standards and requirement but based off some work from my colleagues, I understand they are less stringent, defining SAF to require 50% reduction in lifecycle carbon emissions compared to conventional jet fuels. This allows feedstocks such as corn ethanol, or other dedicated energy crop-based feedstocks (including canola, other oilseed crops) to be used for their SAF.
And if you refer back to the ICAO standards set under CORSIA, they only require that there’s 10% reduction in carbon emissions. It is still unclear to me what would constitute ‘SAF’ to the countries in Asia Pacific that are all introducing some SAF volumetric blending mandate.
One of the key challenges with just defining a standard threshold for carbon reduction and then setting a volumetric SAF target is that you don’t incentivise SAF producers to reduce their lifecycle carbon emissions. It becomes a race to the bottom for the airlines or fuel suppliers to buy the cheapest SAF that meets the threshold for compliance. If instead, we set a carbon emission reduction target and require the blend to achieve that target, then we can benefit from a greater diversity of SAF feedstocks and pathways that meets the economics on the basis of a unit carbon abatement cost. After all, the carbon emission reduction is the piece of value we care about for SAF at the moment, won’t it be better to price that?
At some point in my career I got involved with projects with utilities in Australia. First with electricity distribution networks, then with gas utilities as well. They are all energy networks or utilities because my role as an energy transition consultant is to help players in the economy to navigate the challenges and struggles around our transforming energy landscape. They are struggles that the players and our economy must go through in order to emerge more resilient and climate-relevant.
Electricity networks are seen as important for the energy transition – the drive to decarbonise the energy system – so much so that The Economist ran a cover in April this year that shows a man hugging a transmission tower and the cover text reads “Hug Pylons Not Trees“.
Gas networks and pipelines are on the other end of the spectrum. There’s a lot of concerns around what is going to happen and the expectations of a death spiral. Activists campaigning against the gas networks can sometimes claim that they should be written off completely while contradicting themselves that the assets should not be allowed to depreciate quickly given they still have some operating life or runway. There is a role for gas networks to actually consider the challenging question of getting renewable gas into their network and the struggle has to do perhaps with the question of which gas. Would it be hydrogen, or biomethane, or what? And on the other hand, will they need to transport carbon dioxide? Perhaps captured ones from the industry? What role can the pipelines or network play?
If we keep thinking about molecules and figuring out which molecules, we’ll be somewhat stuck. The trick it seems, is to consider potentially taking the lead. It is still fascinating that Jemena actually took the lead to initiate the Malabar biomethane injection project and saw through it to the recent operation with the first biomethane injection into a distribution network in Australia. Biomethane in most cases is the straight-forward solution – one that is tricky to pull off but can be handled just from supply-side as the end-use equipment will not have to switch from the ones that already use natural gas. Therefore, it is the logical choice for gas networks to start taking the lead on. Perhaps in the next two to three years, it would soon be a no-brainer. But for now, we do what we can to further accelerate the transition.
Transition means being in an in-between state, crossing over to something which is supposed to be perhaps a less temporary state. The challenge, however, is that one can get stuck in transit. Natural gas as a fuel risk being in that state because it wasn’t really adopted fast enough as a transition fuel. And now renewable electricity from solar and wind has more or less leapfrog it in terms of cost advantage. Once battery or other energy storage technology moves along the cost curve and decline sufficiently, natural gas might even be bypassed.
So the world is in a somewhat confused state. When is it right to use gas? What should be counted as alternatives for decarbonisation? In any case, gas prices are spiking now so what does it mean? Should that mean we move forward into more renewables which might even be more expensive? Or we move backward into coal?
These decisions are not meant to be made in categorically; because the entire system needs to be considered. And what is at the margin in terms of choice needs to be clearly identified. If the additional unit of power that satisfies both energy security and the quantity demanded can be obtained through renewables, it should be used. Of course if that is not available, one might have to step back into more carbon-intensive processes. Availability can also be based on budget.
Natural gas itself, needs to be displaced by greener fuels without threatening the underlying combustion technologies that underpin the gas turbines. But that is perhaps for another day.
