Green steel, green ammonium, green plastics, green aluminium and green shipping can be within reach in a world with renewables at 3$ct/kilowatt hour and a carbon price of $50+/ton CO2, with limited costs to the global economy, argue Auke Lont and Zhang Lei.
Auke Lont is President and CEO of Norwegian energy grid operator Statnett. Zhang Lei is the Founder and CEO of Chinese firm Envision Energy, the second largest wind turbine manufacturer in China.
Politicians and industry gathering in Katowice for COP24 are facing one of the most challenging issues in the debate about decarbonisation: how can harder-to-abate sectors, such as steel and plastics production and heavy-duty transport, truly deliver net-zero carbon emissions in the future.
The key elements that can remove emissions in these areas should incorporate the most influential aspects of the market, namely cheap renewables; a strong carbon price; and persistent consumer power.
Where these three elements can be brought together in a mutual reinforcing way it could create the dynamics which eventually will drive out carbon from the energy equation – a ‘carbon exit’ if you will. This combination has the capacity to redesign most of the industrial processes and is already transforming the power sector and taking on transportation.
For example, electric trucks and buses (either battery or hydrogen fuel cells) are likely to become cost-competitive by 2025. In shipping and aviation, liquid fuels are likely to remain the preferred option for long distances but can be made low carbon by using bio or synthetic fuels (or green ammonia). We are seeing rapid advances in technology capable of delivering change. A greater emphasis on the speed of rollout is now required.
Feed-in tariffs have until recently been the catalyst for most investments in renewables. The single most effective means to increase the timely roll-out of renewables in future will probably be Power Purchase Agreements (PPA) entered into by industry to lock in costs and to control carbon risk. Recent successes in Europe and the US have led to the mechanism taking over the role of government subsidies and becoming the new foundations for windfarm deployment.
At the same time, we cannot ignore the current geopolitical dynamics, on display in Katowice, and the challenges these present for the future of the energy transition. With the US currently committed to withdrawing from the Paris Agreement and the destabilising trade relations between major global economies, new global accords will have to be explored.
In light of Chinese President Xi Jinping’s positive remarks during the recent G20 in Buenos Aires on our common responsibilities to tackle climate change, the EU and China could consider an initiative on carbon pricing or green certificates. Instituting a border tax for non-participants would further reinforce this transnational system, greatly improving the dynamics for a carbon exit.
Clearly there is much to do to bridge the gap between the carbon trading initiatives and to hammer out details would certainly take a long time. But a binding agreement between the EU and China, say, on a minimum carbon price or certain form of market price for green certificate in place before 2020 would have some real bite and make the markets take notice. The EU emissions trading system did not really take hold for many years, but no sensible investor dared to invest in a coal-fired plant in the EU after 2010 because of the risks related to the carbon price.
Finally, a more concerted effort should be made at directing consumer power towards driving out carbon. Green steel, green ammonium, green plastics, green aluminium and green shipping can be within reach in a world with renewables at 3$ct/kilowatt hour and a carbon price of $50+/ton CO2, with limited costs to the global economy or prices of consumer goods (e.g. low-carbon plastics would add 1 US cent on the price of a bottle of soda). Technological development to bring this to realization needs to be stimulated.
One way to do this is to invite the world’s 10 largest consumer goods/services producers and retailers (10G) to commit to a common standard for greening these five inputs over the next 20 years through binding purchase commitments – a compact. Where there is a lack of commitment from some global brands, customers might start using their purchasing power to drive change. We have already seen Apple and Nespresso advertising their engagement in the development of green aluminium together with Rio Tinto, while companies like Unilever, P&G and Tesco have recently signed the UK Plastic Pact.
For a successful energy transition, which significantly helps limit global warming to well below 2°C, each of the key elements should play a part. Once implemented correctly, the market would reinforce each pillar. For example, the 10G could also make a commitment on purchasing renewable power which could give a boost to the market for PPAs or, higher carbon prices in EU and China could specifically be designed as sectoral agreements covering steel, aluminium, ammonia, plastics and shipping. This kind of reinforcement could in turn increase the appetite for 10G to enter into a compact.
A report into hard-to-abate sectors, recently published by the Energy Transitions Commission (ETC), found that if each of these elements are supported, industry and heavy-duty transport can achieve net-zero carbon emissions by mid-century.
The signals coming out of Katowice and the subsequent action taken over the next decade will be vital, and the political, industrial and consumer resolve needs to be directed by the most effective means available.