environment Archives

Bearing the cost of transition

Some interesting announcements and updates were coming out of Ecosperity last week. Most of them oriented around financing of the transition. This is an important topic considering that a lot of our existing economic system is locked into high carbon intensity systems because of financial incentives. Being able to change the incentives can help adoption of more emission-reduction measures.

Transition credits

Launched in 2023, a coalition of players were studying the use and deployment of transition credits. Verra also started working on a proper methodology to account for the carbon emission reductions from transition; and they launched it last week. Since the initial MAS announcement, the Acen Coal-fired power plant in the Philippines have become a candidate for a project that will issue transition credits in exchange for shortening the project’s tenure. And Mitsubishi also announced joining the team of firms taking a stake in the consortium that will generate the transition credits. The idea is that the consortium could then sell off the transition credits to players in Singapore who can then offset the carbon taxes; and there is hope to do the same for Japan.

I believe there is interest for these players to also participate in developing more renewable energy projects in the Philippines to help make up for the shortfall of power generation. After all, the article linked above quoted Rockerfeller Foundation that the shortfall will require “1,000MW of solar, 250MW of wind, and 1,000MW of battery energy storage”. Not sure if it comes as a surprise to all, but because of resource availability, solar and wind farms are not ‘always-on’. They only generate a fraction of their nameplate capacities most of the time, which means a lot more capacities must be built to produce the same amount of gross energy. Energy storage is needed to help time-shift the energy to when required.

WEF-GenZero aviation initiative

Launched as ‘Green Fuel Forward’ – it is a capacity-building initiative that is aimed at drawing in airlines, refiners, logistics companies, banks and others. I think the idea of building up capacity to deal with the entire SAF ecosystem is useful. Aviation decarbonisation over the next few decades disproportionately depends on SAF. It is good that the global aviation industry have more or less settled on this particular decarbonisation pathway and is developing various tools to be able to adopt it.

More than just using a different fuel, it involves getting customers to share in the higher cost of the fuel. How to do so is the issue; and all the airlines are afraid of the ticket pricing affecting their competitive position. Different approaches to distributing the emission reduction costs have been mooted: (1) some like the idea of a corporate decarbonisation programme where partners are gathered together and somehow agree to some formula to share the cost of the low-carbon fuel premium; (2) others think we could convert the emission reductions into some kind of credits to be sold to freighters or passengers who are on board those flights. Those methods involve using airlines as the market-maker for emissions reduction.

The customers of airlines especially the corporate players will need to determine their strategy when it comes to flight carbon emission abatement, as well as the budget they can allot to it. For now, corporate probably have some kind of trip budget – they might have to scale it down based on the SAF prices they are expecting. The airlines themselves will have to develop their own strategy of allocating the cost of SAF to passengers or corporate customers. And of course they can then issue or bundle the SAF-credits (SAF-C) accordingly.

As stated in the ST article on this initiative, each SAF-C means a reduction of 2.5-2.8 tonnes of carbon emissions. Assuming that each SAF-C is priced exactly equals to the premium that airlines pay for SAF above their conventional jet fuel, you’re looking at about US$1000-1,600 for each SAF-C. Now in comparison, a typical carbon credit (representing 1 tonne of carbon dioxide abatement) out in the market is selling at around US$3-4; or if it’s CORSIA-eligible, maybe US$20? So corporates are going to have quite some difficulty working out what is worth paying for SAF-C if you were supposing there was going to be some kind of market and price-discovery for those credits. Does it mean the airlines will have to pass on the rest of the cost shortfall to other customers? Then why do only the SAF-C buyers get to claim the reductions?

A lot of capacity-building will be needed and a proper vision for the workings of the ecosystem worked out.

Singapore government’s clean energy fund

There was yet another announcement about US$500m fund that Singapore government is going to deploy for green projects in the region, as part of the new ‘office’ that MAS is going to set up (named FAST-P). That’s actually going to be really interesting though the news was very scarce on details. I suppose they just wanted to announce some parameters they have decided during Ecosperity week while many other things are still being worked on.

We know there will be 3 pillars: (1) accelerating the energy transition away from fossil fuels to clean energy, (2) ramping up green investments, and (3) decarbonising emissions-intensive sectors like cement and steel production. I suppose the first pillar might relate to the transition credits mentioned earlier. The FAST-P office will probably be spending more efforts for (2) because that will be a lot more complex and require someone to drive or coordinate across different parties. It is not clear how (3) can be done when those sectors are likely the beneficiaries themselves either through energy efficiency investments or fuel/electricity substitution.

Having been involved in the set-up of Infrastructure Asia some 7 years ago, I am fully aware of how much effort behind the scenes just to get the resources together, not to mention the actual work of setting up the office. The work to be done by the office is really to identify the activities where it is worthwhile helping to reduce the riskiness of other financiers or funder. The metric would probably be more impact driven though for the sake of Singapore’s economy, it would be necessary to require anchoring some activities out of Singapore.

I think it’s really great to see how the various entities within the Singapore government or related organs (and I’m almost definitely stretching that by implying platforms like Genzero, which is part of Temasek, and some of those Singapore firms dealing in transition credits) are trying to tackle the issue of the transition, not just for Singapore but for the region.

Singapore energy transition II

Going beyond the energy system, there’s another important element to consider for Singapore as we are faced with a world in transition for the energy system. Singapore successfully built itself out to be a sort of energy hub even without domestic energy resources itself. In 2023, Singapore imported 145 Mtoe (million tonnes of oil equivalent) and exported 76 Mtoe. We basically re-exported more than what we consumed as a country for the entire year; and this is because we are largely importing petroleum products to be refined and then exported as more differentiated products. As an economy, Singapore earns the ‘cracking spreads’ from the refinery and drive the economy with that. Technically, it is the oil & gas companies running the refineries that earn that spread.

But more things happen after that, too. Because the refineries are left with a lot of heavy oils at the bottom of the barrel, we have lots of maritime fuels to spare, which coincides nicely with our large transhipment port facilities, together with our highly efficient port system that ensures a strong throughput. These advantages combine to allow Singapore to be the largest bunkering hub in the world. Bunkering refers to the refuelling of maritime fuel for the vessels calling at the port of Singapore. Storage terminals and other facilities will contribute to that.

With that scale, comes along a lot of other opportunities and economic activities that helps drive the economy. Vessels will call at the port to move the cargoes, which means that vessel services are required at the port. All sorts of cargo audit, verification services would be required. Engineering for vessel repair and overhaul could be added to the port city.

If we go back up stream to the refinery process, there are a lot of corresponding supply chain, derivative products that can all be based in Singapore, including some of the petrochemical production, wastewater treatment, waste oil recovery, centralised utilities services for the chemical plants. And it is not limited to manufacturing of course. There would have to be engineering firms, system integration firms, companies stocking up components for all of these plants including valves, flanges, and so on.

So while we can go on and on about the energy transition, when politicians and government think about their economies, there has to be some kind of rational and gradual shift rather than sudden evaporation of all of these activities. I don’t think we have clear solutions yet. For the past decade or so, government had left corporates to plan their own transitions, hoping to create friendly policies which will ‘help’ these corporates along their transition plan.

Now the issue is that the corporates tend to make big ambitious commitments when times are good only to realise they cannot be delivered as the resources they have is insufficient. Better yet, many of them set targets based on assumptions that simply does not hold in a low-carbon economy. So there is mostly empty talk, with no sticks or carrots to keep them in line. This is not just about discipline of executives and managers, but the ability of shareholders and other stakeholders to bear the costs of the changes necessary.

And then in 2020, Covid-19 struck and the government went full steam ahead with interventions, ushering an exceptional era where more expectations are piled on them to intervene directly and set regulations to push the world towards net zero. We all had hoped so through rounds and rounds of COP; but they really only started waking up a bit more during Covid-19. Yet the pandemic left us all weaker, with less resources to cope with the sustainability issues. When the funding and stimulus from the pandemic dries up, it seemed that a lot of plans for net zero had to take more of a backseat.

In Singapore we tried to ramp things up a bit more with the carbon taxes – despite how relaxed it actually is, there were still groans and moans – serious enough for the government to consider some kind of ‘rebates’. It seems to me that pricing carbon wasn’t really enough – just as setting up more tariffs was not going to cause manufacturing to magically re-shore back to America. There’s still a lot of coordination, capacity-building to do.

So let’s work together, and let’s devote some resources to consultants like my kind to help build that capacity and create that capability to moe into the next phase.

Singapore energy transition

As a strategy consultant devoted to the energy and climate transition, I spend a lot of time thinking about what is the pathway to transit our economy, and economic activities. A lot of the confusion and disorderliness arises out of poor understanding, misinformation and also uncertainties surrounding technology curves. Another reason is that we desperately want to get things right before we can make the move – this is a disease resulting from having too much information and failing to be strategic. Sometimes that is too late.

We have pretty much breached the threshold of 1.5 degree Celsius warming. That means we will have to decarbonise our economy while simultaneously deal with the consequences of climate changes within those temperature thresholds. We could fall into various positive feedback cycles that bodes ill for our climate systems. For example, we could be looking to manage the increased temperatures we experience by introducing more cooling, creating more comfortable indoor spaces that ends up throwing up more heat into the external environment, and also emitting more carbon dioxide in the process. I suspect it is already happening in Singapore.

I think an orderly and balanced transition isn’t about looking for the ultimate fuel or energy vector as our panacea. Even for Singapore, I dare say despite the National Hydrogen Strategy, it is very unlikely that we will be able to replicate our 95% natural gas strategy for our electricity system with something low-carbon. Unless it is biomethane but even then, there are doubts about the adequacy of supply. This means we will need to adopt different strategies.

I think for an energy system like Singapore, electrification may not always be a solution because adding more demand for green electricity to the grid would just make it harder to green our grid unless we manage to pull off an ASEAN power grid system where we can bring green power from anywhere in ASEAN and consume it in Singapore. Otherwise, if we assume a standalone grid system in Singapore that have projects offshore with dedicated connections to Singapore grid, it is better to focus on greening the existing electricity demand first, before looking at stepping up on electrification efforts (especially those where natural gas is currently being consumed).

The last thing we want to do is to electrify all our road transportation, only to have to import green hydrogen to be used to generate electricity to charge our electric vehicles. If that actually happens, then won’t it make more sense to put the green hydrogen directly into hydrogen-fueled vehicles instead? We want to minimise these inefficiencies and unnecessary round-trips. I think we need to consider first the anticipated electricity demand and the size of the system we will need over the next 2-3 decades, and make sure we are able to strike enough deals and do enough projects to meet that first.

Then separately, on the fuel systems side, the authorities will benefit from developing a clearer view of what our industries need. The industries are also transforming and trying to meet decarbonisation obligations, not just from the carbon tax introduced in Singapore but also pressure from other markets. By aggregating these needs and then looking at common infrastructure or aggregated deals that we can explore, we create more synergies and stickiness for the industries housed in Singapore. Whether it is renewable diesel, sustainable aviation fuel or biofuels for the maritime industry, these various fuels can be looked into more holistically for the demand pockets within Singapore to tackle them together.

We need to use the same attitude we have used for industry promotion and attraction to look at our energy system. Perhaps for the next leg of growth, the Energy Markets Authority will need to be parked under the Economic Development Board? Or at least they will have to be more coordinated and act almost as one agency in charting the needs and course ahead.

Primary energy fallacy

I think more people need to understand this concept that was attributed to Michael Liebriech, a thought-leader in the energy transition. Sam Hamels just wrote a pretty short explainer of its implications on Linkedin, which I encourage you all to read.

The assumptions are simple and does not address some of the other obstacles along the way but it is important that we should not be overwhelmed by the gross energy requirements in primary energy terms when we recognise that a lot of primary energy in the form of fuel are lost in the process of converting them into energy.

There are other obstacles along the way however, when considering that the most viable and economic renewable electricity sources are typically wind and solar, with substantial hydropower in the mix for certain geographies. These include:

Transmission and distribution infrastructure:
- Hydropower tends to be farther away from demand centers so the distance of transmission makes the infrastructure expensive
- Wind and solar tends to be intermittent which means that a lot more needs to be transmitted during the times they are produced while the infrastructure remains underutilized when they are not available
- Overall capacity will need to be increased compared to the fossil energy regime
Energy storage infrastructure:
- While hydropower dams could benefit from becoming pumped storage, other renewables such as wind and solar will require significant energy storage in the grid in order to reduce the need to overbuild (because of the point above)
- Energy storage will also help provide the ancillary services for the electricity system as fossil plants retreat from the system (eg. reserve markets, frequency and voltage supports) while it becomes more volatile due to intermittent renewable electricity.
- A lot more investment into stationary energy storage will be required. At least before the more lofty vehicle-to-grid concepts kick into place.
End-use system/equipment changes
- To reap the benefits of the improved efficiency of an electricity based energy system, there will be a need to electrify more which means end-use equipment will need to be changed – assuming we’re trying to change a whole fleet of equipment with no regard to remaining lifespan, we are not properly using up our invested assets.
- Typically, fuel-driven systems have longer lifespans than those driven by electricity – that may have to do with the fact that fuel-driven systems are more mechanical and have less delicate circuitry systems. Of course, that varies with specific use-case and appliance but what this means is that you might still face more frequent replacement, and the environmental cost of that might need to be carefully considered.
- In some cases, the change in end-use equipment requires further infrastructure support. The most important example is electric vehicles, which need the support of a robust charging network – that must be supported by improved distribution networks in the grid.
- Besides the grid, institutional improvements that properly allocate costs and reflect them to customers are necessary as well. Sometimes, it may make the transition harder as well. For example, the peak demand pricing of electricity markets drove a bakery in Queensland Australia to change their electric ovens to gas fired ones because they absolutely have to bake their breads in the early hours of the morning.

Now the reason I’m listing all these other obstacles is to challenge us to think through the solutions needed having convinced ourselves that we actually can work on getting enough supply into the system. There is still a lot of work to do to ensure this supply actually matches the real demand. Looking at gross energy terms is simply not enough, as evident from the primary energy fallacy itself.

SAF Pathways and value pockets

Today’s conventional wisdom around the Sustainable Aviation Fuel (SAF) market is that it will start with the HEFA pathway which converts oily waste compounds into jet fuel. The process is well established and economical. The challenge is aggregation of the feedstocks which takes the form either of used cooking oil and oily waste streams coming out of some vegetable oil production streams. They could also take virgin vegetable oil and oil from oilseeds to produce (but these tend to have a higher lifecycle emission associated with them as they are cultivated and will require fertiliser inputs and other resources).

The regulators and market expect that these feedstocks will be insufficient as the virgin oils should be reserved for food use and the waste-based feedstocks are limited. So then when the HEFA feedstocks supply goes down, prices of these feedstocks would move up towards the next SAF pathway. The popular contender after HEFA is the alcohol-to-jet (ATJ) pathway. They take bioethanol or methanol and turn them into jet fuel. This process is a bit more expensive, but because bioethanol is already being produced by various plants worldwide to supply provide for gasoline blending in countries with ethanol-blending mandate, it has a much more stable and ready market than used cooking oil.

Further technology pathways are expected to involve gasification where biomass is subjected to thermal processes that breaks down the material into constituent carbon, oxygen, hydrogen and nitrogen compounds, then reformed to make liquid fuels including jet fuel. These pathways are even more expensive, but their feedstock, which is pretty much any biomass, would be much more abundant.

So, the supply curve is expected to notch upward in discrete steps; once prices hit the threshold to unlock the next technology pathway, more feedstock will enter the picture and hence increase the supply of SAF available. This doesn’t mean that the earlier pathways will earn more margin, because the bottlenecks are the feedstocks; typically, the feedstock owners or aggregators tend to extract more of that value.

But this would mean that the prices of SAF should and can only rise as the mandate for more SAF and aviation decarbonisation becomes stricter and emission reduction targets become more ambitious. Now there is another transition to consider. That is a scenario where the chief driver of SAF adoption, regulations and blending would be decided by the market – but the outcome they are targeting would be based on proportion reduction of carbon emissions relative to conventional jet fuels.

Now of course, some from Oil & Gas players might think they can use carbon capture and storage to lower the fossil jet fuel intensity to meet the criteria. Yes to a certain limit; because the carbon dioxide emitted during the aircrafts’ journeys from fossil jet fuels will always been counted while the biofuel or synthetic fuel’s emissions will be zero (because they are short-cycle or biogenic carbon dioxide).

So I urge regulators and policy-makers; focus on the carbon intensity reduction targets, rather than volumetric blending targets.

Asset prices & markets

I haven’t looked closely into the numbers, but one cannot help but realise that those markets that have grown well over the past few decades, but where stock exchanges or equity multiples have been relatively pathetic in performance, tend to have exceptional performance in the real estate market. Cases that come to mind include Singapore, China, Vietnam and perhaps more recently, Hong Kong.

This makes the proposal from Singapore government on trying to boost the stock exchange in Singapore through this ‘Equity Market Development Programme (EQDP)’ pretty interesting. The initial idea is to have funds that inject liquidity into companies in the SGX beyond just those represented in the broad market index. Mechanics aside, I don’t know how well the intentions are conveyed by the government. Maybe they think it is too sensitive to share or too controversial. I think it’s more interesting to consider the intent properly than the mechanics or the chances of success at this point.

The issue with wealth getting tied up with the real estate market in Singapore and especially for Singaporeans is that it is illiquid as an asset; the value growth can be quite uneven, and more significantly, housing is a necessity so when it becomes a way in which majority of the people store their wealth, it prevents the newcomers from entering the market. Across generations, it can lead to severe distortions in terms of affordability. Home ownership is seen as a cornerstone in the formation of community and Singapore society – owning a home gives us a physical stake, and more importantly, it leads us to take actions that are more long-term when it comes to caring for our surroundings.

So in my mind, the EQDP is more about trying to activate and encourage overall movement of wealth towards the stock market rather than the housing market. After all, not everyone needs to hold a piece of stock but everyone needs a shelter above their heads. We’d rather have asset price inflation in the stock market than to have it in our housing market. Besides, the liquidity of Singaporeans has probably been contributing to the asset price inflation in the stock markets in the US. So why not keep them at home? This, I think is probably a more significant intent for EQDP than just thinking about financial markets development. And I think this social intent is probably more admirable than the calculative sense of how much more economic benefit or mileage we can get out of the markets in Singapore or the spill over financial services impact it can create.

Now whether the mechanisms proposed as part of the EQDP makes sense or not, I’ll perhaps comment some other day. And maybe when it is clearer what it would be.

Land resources

I don’t think we’re being imaginative or aggressive enough with tackling climate issues. Nor are we thinking about how to sync-up our efforts to grow our economies, improve lives together with environmental conservation efforts. There are plenty of false dichotomies that result from how we’ve developed our economies. It’s haunting us and discouraging us from thinking in worthy directions for problem-solving.

One example of a dichotomy that may turn out to be false in the long run is the issue of food versus fuel. The food shortage problems today is driven by logistics and localised disaster more than aggregate unavailability or insufficiency. If anything, instead of trying to outright ban dedicated energy crops or crop-based feedstocks for biofuel production, it would be wiser to encourage a programme of reducing desertification and farming of marginal land with resilient crops that can be used as feedstocks for biofuels.

Another involves questioning of thermodynamically-unappealing solutions. Direct air capture (DAC) requires that energy is so cheap that you should mechanically capture the carbon dioxide from the air with machines. And yes, it doesn’t take as much land per unit of carbon captured. It could even compete with vegetation/forests. One could consider through the lens of this competition with nature: Forests takes about 860 square km of land to absorb 1 million tonnes of carbon dioxide whereas if you were to build a DAC plant plus a solar farm powering it which can capture 1 million tonnes of carbon dioxide a year would only take about 30 square km, which is ~3.4% of the land area. [my calculations are back-of-envelope and derived from unit figures here and here].

Yes, but then what about the limited lifespan and all the value chain emissions from making solar panels and DAC systems? Indeed, those trade-offs are worth thinking about, which is why we probably won’t advocate replacing natural habitats and forests with DAC. A forest is more than just sequestering carbon, but also provides other ecosystem services such as enhancing biodiversity, increasing groundwater supply, and even helping to clean the water and reducing the risks of desertification.

At some level, biofuels compete with synthetic or e-fuels; and biomethane perhaps is imagined to compete with hydrogen. But all of these are false dichotomies. The world needs us to keep working on different solutions and coordinate our efforts to scale them where they make sense. One can be purist about different things and get nowhere. Let’s try to lay out the trade-offs and work through those in specific contexts rather than seek to rule out solutions on the whole.

What made Singapore’s economy?

One of the reasons I determined to study economics was because Singapore was a country labeled as an economic miracle, and I thought it’d be cool to figure out what was behind it. For decades, we’ve been told that it was the brilliance, hard work and sacrifice of our forefathers, strong leaders and a little bit of circumstances that made us what we are today.

It was a nice feel-good lesson but it wasn’t always easy to make clear of what it means for the future. There was limited strategies that we could adopt out of it. We did also learn that Singapore was a trading hub so it was vital that the world trading system went on and developed, because we facilitate that trade across west and the east, and we served those large vessels, and loads of containers, bulk goods that had to change hands in our location. So the port we had serviced these people and lots of local companies and industries grew to support that.

Even that wasn’t enough; it was thanks to the brilliance of our early leaders which attracted industrial players to set up shop in Singapore, provide employment, opportunities for skills, and provide an industrial core on which we could develop from. To accomplish all that, we need to have good and well-educated labour force, and a very stable environment. The strength of our government is delivering on all of that.

Today, our economy remains extremely reliant on trade, though one may argue that our original intent was to use trade to lift ourselves up enough to develop our own industrial giants and core. A couple of countries like Taiwan, Korea, Japan and even China sort of achieved that but Singapore remains much stronger in terms of the bringing in foreign direct investments, and providing services to parts of the economy that’s doing very well. We have yet to really build up strong giants, opt-ing instead to play the financial game which is heavily reliant on money as an asset.

I think it is clear that we had spotted an opportunity to bring ourselves out of poverty through the economic strategies but after it delivered good results previously. From now, we will need to figure out the way forward that does not merely involve repeating past actions, but improving upon those past actions more radically. Finally, we ought to recognise that our final goal is to create our own industrial champions that can secure a footing in the global stage.

60 years on, we have matured a lot as an economy but I think it’s only the beginning.

Trump tariffs

We live in interesting times and as an economist, I find it hard to resist commenting on the events I’m living within. I got into economics because I’ve been fascinated by trade, the amazing ability for the world to grow in production just because it is able to specialise in different things and thereby contribute to overall growth and prosperity of the world. The challenge is that being good at different things can affect how the overall increase in wealth or production is distributed. But if we care mainly about the world being able to do more together at the same time, we just want to maximise trade. On the other hand, if we care about only what we get individually, on relative terms with others, then yes, trade can get contentious, even if we are getting more on an absolute scale than if we hadn’t trade.

There is quite a couple of forces within the US economy that is generating the symptoms that we are seeing including the huge trade and budget deficits. None of them is going to be easily resolved through the use of trade tariffs. And yes indeed, there will be a need for the world system of trade, foreign reserves and financial exchanges to shift. The question of how it will shift and whether the transition is smooth or not will depend on both the actions of US and the rest of the world. Trump’s approach of bringing people to the negotiating table doesn’t make so much sense when he is simultaneously weakening his hand while trying to strike deals with multiple parties.

What that shows is a highly ego-centric or US-centric view of the world that will prove to be self-destructive. I’m not saying that the whole of US thinks or act this way but the fact that such a leader is voted into office makes things more difficult than it is. Obviously the electoral college system might need to be rethought or reformed but there’s probably too much gaming of the system that is taking place.

Back to the point about tariffs. By imposing a broad sweeping tariff system across the world, what will happen is that overall cost of living and consumption will rise in the US given how much it is dependent on imports (the deficit themselves reflect that). The goods or services where demand is more price sensitive might find themselves switching more towards domestically produced ones assuming that they exists and can be priced competitively. Otherwise, the status quo + higher tariffs will prevail. The government will maybe raise their revenue from customs but the US consumers are ultimately paying these tariffs. So on the trade front, nothing really happens, and on the government budget front, the government is probably going to get a bit more revenue to reduce their budget deficit.

If we assume that the reason for US budget deficit is that the government isn’t taxing enough relative to their spending, then it means they will have to somehow find ways to obtain more from the value that they are bringing to the markets. Perhaps it is the rule of law, or regulation of the markets, the government isn’t charging the fair amount to the beneficiaries, or allowing too much leakages (think corporates avoiding taxes or billionaires parking their returns in offshore tax havens). If we assume the richest ones are the most mobile, then applying tariffs would simply worsen the inequality situation in the US.

Hydrogen’s bad news

Things hasn’t been the most positive for hydrogen the past 2 years or so. Hyzon Motor is on the verge of ‘giving up’, while When one look back, it is a wonder why we felt comfortable ignoring some of the bigger problems associated with hydrogen. It is definitely less ‘trendy’ to tout hydrogen as the solution for the energy transition these days.

One of the challenge about the climate and energy transition is that it is a transition. And that means there is going to be change happening over time; and the challenge is that we don’t really know what the end point is in terms of the technology and pathways even when we know that we’re trying to have a go at net zero.

In the meantime, as we struggle to determine what we’ll use to fuel our aircrafts or vessels, we are making decisions on replacing these equipment, and trying to project cashflows over an asset lifespan or 20-30 years. These all without the certainty of the fuel being available is extremely challenging. So instead, we are more likely to bet on things not changing rather than things changing.

Hydrogen continues to face an uphill battle when it comes to the science, the technology and economics. But there is still good reasons for us to continue refining the technology we have. In the mean time, while we are still trying to decarbonise what we can, we try to leverage the resources that are available more immediately. We can optimise our biofuel supply chains more to achieve lower carbon intensity. Along that journey, we can improve our traceability of feedstocks and biofuel supply chains.

Now, biofuels or any of the new fuels will never be as ‘cheap’ as fossil fuel. And just because they are chemically almost equivalent to the hydrocarbons we dig from the ground doesn’t mean they are the same. This means we will have to continue working at pricing carbon and allowing the real price of carbon to hit all of us. Governments can protect the economically vulnerable not by blocking the transition but ensuring that more and more of that carbon revenues gets directed to support the vulnerable who may not be able to deal with the cost from the transition.

Biofuels could even be a commercialisation pathway for green hydrogen as the hydrogen can contribute to boosting the biofuel yields of organic feedstocks in the FT-Gasification pathway and improve the overall economics of the project when there is access to cheap renewable electricity. It’s almost like blending e-fuels into the mix already. This is a plausible intermediate step for us to encourage more green hydrogen production to sufficiently create more scale to bring down the costs.

The technology surrounding logistics for hydrogen then needs to improve before the end-use equipment would transform. Changing end-use equipment is still the hardest to do. Even if it’s just the heavy industrial users who have to change.

So the good news is that we may still eventually land on hydrogen in some shape or form. It may not be what we are envisioning now, but it’s vital to recognise that the time horizon is probably a lot more stretched out than we think.